Somalia reached an agreement with the International Monetary Fund (IMF) on Thursday for the second and third reviews of Somalia’s economic program.
The staff-level agreement is subject to approval by the IMF’s executive board, but would extend budget support until August 17.
The IMF announced that it had reached an agreement after holding virtual discussions with Somali authorities.
Dr. Abdirahman Beileh, Somalia’s Finance Minister, said that the agreement showed that economic reforms were in progress.
“I am pleased that Somalia and IMF Staff have reached a crucial agreement on the Second and Third Reviews of the Extended Credit Facility, which are the basis for our successful national economic reforms. This confirms we are on track and moving forward.”
In early May, the Somali government reached out to the IMF, formally requesting a three-month extension to review the economic program, which the IMF initially set for mid-May.
The approved extension will give the IMF enough time to consult with Somalia’s new government.
The current three-year budget programme, worth nearly $400 million, was approved by the IMF in March 2020 and earmarked to fund Somalia’s National Development Plan and other economic reforms.
The outgoing Farmajo administration faced significant revenue shortfalls in the final year, mainly owing to budget support grants that were suspended until the completion of the elections.
The key IMF-supported programme, which supports military wages and other essential services, is also an integral prerequisite for Somalia’s debt relief program.
As it stands, Somalia currently owes $3.7 billion, or 63% of GDP, after the Paris Club of creditor nations agreed to restructure Somalia’s debt, including immediately cancelling $1.4 billion.
The IMF’s Managing Director for Somalia, Laura Jaramillo, said that she believes Somalia can reach the debt-relief completion point.
“The government continues to make headway in the HIPC debt relief process. The authorities reached debt relief agreements with most Paris Club members, and continue to seek agreements with other creditors. Further progress on reforms is needed to achieve the HIPC Completion Point Triggers on a timely basis.”
If Somalia can complete the IFMF program, the outstanding debt should drop to $557 million or 6% of gross domestic product.
Jaramillo said that international lender expects economic growth to pick up in 2022 to 2.7%, which would be driven by private consumption and buoyed by remittances but that the higher costs for fuel and food will slow economic activity.
Jaramillo also credited Somalia’s central bank for implementing major economic reforms.
“The CBS continues to advance institutional reform. The new National Payment System is a major milestone, and the two largest mobile money operators were granted licenses in 2021. The CBS should continue to enhance its supervisory capacity and monitor the financial system closely. Continued capacity building across all stakeholders is needed to improve AML/CFT compliance.”
The deal comes as newly elected President Hassan Sheikh Sharif takes over the reins in a country facing multiple economic shocks, including biting drought, desert locusts infestation, rising food and energy costs and security risks. He is expected to formally take office from Mohamed Abdullahi Farmajo on Monday.