IMF Executive Board Concludes Fifth Review of the Extended Credit Facility for Somalia
On May 17, 2023, the Executive Board of the International Monetary Fund (IMF) completed the fifth review of the Extended Credit Facility (ECF) arrangement for Somalia. The completion of the review enables the immediate disbursement of SDR 7 million (about US$ 9.4 million), bringing Somalia’s total disbursement under the Extended Credit Facility (ECF) and the Extended Fund Facility (EFF) to SDR 285.4 million (about US$ 386.1 million). In completing the review, the Executive Board approved a waiver of non-observance for the December 2022 performance criterion on spending on compensation of employees, goods and services, and contingency based on corrective measures in the supplementary budget for 2023. The Executive Board also approved a fourth HIPC interim assistance in the amount of SDR 2.211 million to cover 100 percent of Somalia’s eligible debt service to the IMF that falls due between June 17, 2023 and June 16, 2024 or the HIPC Completion Point, whichever is earlier. The Executive Board’s decision was taken on a lapse-of-time basis.
Somalia’s ECF arrangement was originally approved by the Executive Board on March 25, 2020 as part of a three-year blended arrangement under the ECF and the EFF, which involved access of SDR 252.86 million (155 percent of quota) under the ECF and SDR 39.57 million (24 percent of quota) under the EFF. As the full amount of the EFF arrangement was made available on approval and drawn at the first purchase, the EFF arrangement lapsed immediately. The ECF arrangement supports the implementation of the authorities’ National Development Plan and anchors reforms between the Heavily Indebted Poor Countries (HIPC) Decision and Completion Points.
Notwithstanding significant climate, security, and political challenges, the Somali authorities remain committed to economic reforms and the HIPC process with the aim of building resilience, promoting inclusive growth, and reducing poverty. Program performance has been broadly satisfactory and the HIPC Completion Point appears achievable by 2023Q4.
Economic activity in Somalia has been weighed down by the drought and subdued remittances inflows, and the 2023 GDP growth projection was downgraded by ΒΌ percent to 2.8 percent. Average inflation is expected to decline to 4.2 percent in 2023 as commodity prices recede. Near-term risks are elevated, including a worsening of the food crisis if healthy rains are not sustained in 2023 or if commodity prices increase. Other risks include security challenges, political risks, and policy slippages that could delay reaching the HIPC Completion Point.
The authorities are committed to advancing fiscal and institutional reforms, and normalizing relations with all external creditors. In particular, sustained efforts are needed to strengthen domestic revenue mobilization to make room for priority spending, while containing discretionary expenditure pressures. In this regard, improvements are ongoing on public financial management, including on payroll integration. It will be important to continue to implement reforms to improve AML/CFT and strengthen governance and transparency, including on procurement and concessions. Continued strengthening of Central Bank of Somalia institutional capacity and financial sector reforms are welcome and should continue. Steady progress is needed to finalize the HIPC completion point triggers and achieve debt relief agreements with all creditors.
Timely financing and capacity development support from development partners is essential for the successful implementation of the authorities’ reform strategy. Contributions from Somalia’s partners to the Somalia Country Fund are critical to ensure smooth delivery of IMF technical assistance to support the goals of the ECF-supported program and the HIPC Initiative.
Source: Somali National News Agency