President of Somalia Mohamed Abdullahi Farmajo whose term in office has expired along with his finance minister Abdirahman Beileh and the International Monetary Fund (IMF) mission chief for Somalia Laura Jaramillo, have yesterday discussed Somalia’s IMF budget program which is due for a review in the middle of May 2022.
In the meeting, the IMF warned that it might have to stop its program in Somalia if there is no new government in place by the time of the pending review and that election delays mean a new administration may not be ready to endorse planned reforms in time, forcing an automatic termination. This will risk the disbursement of budget support grants, opening a financing gap; and without other financing options available for the Somali government, the financing gap could result in new domestic arrears, meaning delays in payment of wages, allowances, and essential goods and services; and derail the timing for the HIPC Completion Point and full debt relief, the IMF said.
The previous review took place on November 18, 2020. The delay has already taken a toll on finances, which has been worsened by a months-long feud between the president and the prime minister.
“Political uncertainty and election delays are also affecting Somalia’s IMF-supported program. All IMF-supported programs are reviewed by the IMF Executive Board on a semi-annual basis to assess whether commitments are adequate to achieve the program’s objectives”, the IMF said in a statement.
It now looks certain Somalia will need an extension for a review, because of the election delay, but it is not automatic as It would still depend on the approval of the IMF Executive Board. it seems very unlikely a new government committed to Somalia’s financial reform agenda would be in place to agree to a deal. The IMF needs a commitment of at least three months before the review, the source said.
Although Somalia has maintained strong reform momentum, the regular review of Somalia’s IMF-supported program is overdue. The next review can only move forward an agreement with the new government, after the elections, on the objectives and key policies under the program and confirmation from development partners that financing will be forthcoming.
Analysts are sceptical about the possibility of elections concluding in May, with some suggesting that, despite being behind schedule over a year, it could drag on until June, this year.
According to sources privy to the meeting, president Farmajo distanced himself from the election delays, noting it was no longer his responsibility, citing that he handed over election management to Prime Minister Mohamed Hussein Roble.
Every month, there is $10m gap between the government revenue and its expenditure. Somalia’s international partners stopped their budgetary support to Somalia, following delayed elections. Because of these delays, budget support grants in 2021 were only US$38 million, compared to US$170 million expected in the budget. So far, the resources provided to Somalia as part of the IMF’s 2021 SDR allocation (SDR157 million) have been compensating for this revenue shortfall, but these resources will run out in a few months unless budget support is disbursed.
According to the HOL source, political harmony and an agreed-upon election outcome would determine basis for the reinstatement of development partners’ budget support to Somalia.
The IMF says achieving full debt relief at Completion Point is well within reach for Somalia if all requirements are met, and could be attained as early as next year. However, continued political uncertainty and election delays risk derailing the whole process.