IMF reaches staff-level deal with Somalia, revising growth forecast

Mogadishu, Nov 1 (IANS) The International Monetary Fund (IMF) said it has reached a staff-level agreement with Somalia on the second review under the extended credit facility (ECF) arrangement.

The IMF said in a statement issued Thursday evening that the deal that would see the lender unlock some funds is subject to approval by the IMF executive board.

"Program performance has been strong, demonstrating the authorities' steadfast commitment to macroeconomic stability and strengthening institutional capacity and frameworks," it said.

The IMF upgraded Somalia's real gross domestic product (GDP) growth to four per cent for 2024 and 2025, up from 0.4 percent compared with previous forecasts, based on strong exports and remittances. However, it said risks remain elevated, including regional and domestic security developments, commodity prices, and climate shock.

"Somalia's real GDP growth outlook has improved, though challenges and risks remain significant. Positive trends in agriculture, exports, and remittances in 2024 are expected to continue in 2025," IMF Mission Chief Laura Jaramillo said in the statement.

Jaramillo said inflation is expected to continue on a downward trend to 4.5 per cent by the end of 2024, although the pace is slower than anticipated earlier, Xinhua news agency reported.

"Despite security challenges, the Somali government remains steadfast in its fight against terrorism and continues to work with international partners to ensure a successful transition from the current African Union Transition Mission to a new force by January 2025," Jaramillo said.

She said near-term risks to the outlook include climate shocks, domestic and regional security developments, lower global growth, and higher commodity prices.

Jaramillo said the 2025 draft budget envisages domestic revenues of 3.3 per cent of GDP and an overall fiscal deficit of 0.2 per cent of GDP, assuming continued access to grant financing, which remains critical for Somalia.

"The authorities continue to focus on raising domestic revenue, aiming to fully cover operational expenditure with domestic revenues by 2027 while also accommodating higher education and health spending," she said.

The IMF official noted that fiscal outturns in 2024 have been in line with expectations, and an overall deficit of 0.2 per cent of GDP is expected for the year.

She, however, said that raising human capital by increasing the educational attainment of Somali children and closing gender gaps in education can bring significant growth dividends. "Building resilience against climate shocks and strengthening food security is also a priority. Given Somalia's very limited resources, financing and technical assistance support from international partners remains crucial," she said.

Jaramillo said the Central Bank of Somalia is advancing institutional governance and financial sector reforms, including efforts to strengthen the framework for anti-money laundering and combat the financing of terrorism to comply with international standards.

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