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Somalia: Staff Report for the 2015 Article IV Consultation

Author(s):
International Monetary Fund. Middle East and Central Asia Dept.
Published Date:
July 2015
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Context and Risks

1. Somalia is a fragile state emerging from a protracted civil war. In 1991, the government was toppled by armed opposition groups, leading to implosion of the central government and devolution of power to administrative regions. In the 24 years since, the situation has been very difficult and volatile. A provisional constitution was adopted in August 2012 and a 275-member federal parliament was elected by 135 traditional elders from across Somalia. In September 2012, the parliament elected Mr. Hassan Sheikh Mohamud as president, leading to formation of a government in October. Consistent with broad international support of the Federal Government of Somalia (FGS), the IMF recognized the FGS on April 12, 2013. Institutions are very weak and lack of capacity impedes development. 1 While work to establish a federal constitutional framework is underway, the regions are fairly independent. Nevertheless, donor initiatives to channel earmarked resources through FGS treasury systems are helping reduce regional autonomy. The government has a poverty reduction strategy, but in the absence of adequate domestic resources, poverty reduction efforts are being undertaken mainly through off-budget donor support.

2. The Somali authorities have resumed active engagement with the Fund. Recognition of the FGS paved the way for staff to provide technical assistance (TA) and policy advice in key areas, including: (i) financial governance and accounting; (ii) currency reform; (iii) bank licensing and supervision; (iv) fiscal policy and budget preparation; and, (v) development of statistical systems. Reengagement has laid the groundwork for these discussions; milestones include: (i) national budget preparation; (ii) development of consumer price index, gross domestic product, and external sector data; and, (iii) preparation of the central bank balance sheet. While resources are available for TA and training, absorptive capacity and security issues are overarching constraints. Despite shortcomings in source data and coverage, core data were available for these discussions. Data deficiencies limited some standard elements of bilateral surveillance, such as medium-term projections, debt sustainability analysis, and an external stability assessment (Box 1).2

Box 1.Technical Assistance by IMF Staff

Staff TA aims to support building economic institutions and sound macroeconomic policies (see Table below and the Informational Annex for a list of individual TA missions). Somalia would benefit from TA in various areas. On February 6, 2015, the Fund launched the “Trust Fund for Capacity Development in Macroeconomic Policies and Statistics for Somalia,” to finance TA in: (i) developing macroeconomic frameworks and policies; (ii) establishing a functional central bank; (iii) modernizing tax and customs administration; (iv) strengthening public financial management; and, (v) improving statistics. The program coordinates activities with the authorities and other TA providers. Continued donor support will be critical for capacity building.

The trust fund is a US$9.3 million multi-donor program covering 2014-17. Initial contributions were received from the Arab Fund for Economic and Social Development (US$3 million), Canada (US$2.5 million), and the UK (US$1 million). The trust fund can be renewed. As of end-May 2015, US$124,297 had been disbursed.

TA has been delivered in key areas of IMF expertise, namely: (i) fiscal issues; (ii) the monetary and banking sector; (iii) statistical systems; and, (iv) legal issues. In the fiscal area, TA has addressed: (i) budget accounting and reporting; (ii) budget preparation and execution; and, (iii) tax policy and customs administration. In the money and banking sector, TA has focused on: (i) the organization and governance structure of the central bank and its accounting systems; and, (ii) and licensing procedures and supervision of financial institutions. Regarding statistical systems, TA has addressed development, compilation and publication of national accounts, external sector statistics, and prices statistics. In the legal area, TA has focused on: (i) reviewing the central bank law; (ii) establishing a legal department in the central bank; (iii) development of central bank by-laws and a code of ethics and conduct for the board; and, (iv) advice on banking legislation and regulations.

TA Activities
DepartmentActivity
FADPFM reform
Formulation of credible macro-fiscal policy objectives and aggregates
Budget planning and preparation
Expenditure control and cash management, including fiscal rules
Budget accounting and reporting
Application of international standards in budget management
Modernization of chart of accounts
Formulation and evaluation of tax policy and customs administration
Fiscal descentralization and revenue sharing options
Development of a framework for natural resource revenue management and taxation
Development of long-term tax reform strategies for efficiency and equity
Development of revenue raising measures legislated by the Parliament
MCMCentral bank organization, governance and accounting
Monetary and exchange operations and payment systems
Banking legislation, regulation and supervision
Currency reform
Reserve management
Asset recovery
STADevelopment and dissemination of national accounts
Development and dissemination of external accounts (BOP and IIP)
Development and dissemination of price statistics and consumer price index
Development and dissemination of monetary and financial accounts
Development and dissemination of government finance statistics (GFS)
Collection of external debt data
LEGCentral bank legislation and by-laws
Banking law and regulation
Natural resources law and contracts
Establishment of a legal department in the central bank

In the period ahead, extensive TA is planned. In the fiscal area, TA will assist with: (i) preparation of the 2016 budget; (ii) tax policy; and, (iii) public financial management. In the monetary and banking sector, TA will support: (i) central bank governance; (ii) currency reform; and, (iii) bank licensing and supervision. TA for statistical systems will assist with: (i) balance of payments compilation; (ii) the consumer price index; and, (iii) monetary aggregates. Legal assistance will help with the preparation of central bank by-laws.

TA has been delivered through different modalities. Staff has developed capacity building plans and is providing TA through deployment of advisors, staff-led missions, expert visits, and training.

TA has built capacity and allowed staff to begin carrying out surveillance. TA has helped build capacity in key government institutions and allowed the authorities to provide basic data for surveillance.

3. While Somalia has been welcomed back as an active member of the Fund, it remains ineligible for financial assistance pending the clearance of its longstanding arrears. Arrears clearance will be an important part of normalizing relations with the international community and establishing a roadmap to debt sustainability. The process will involve: (i) establishing a track record of cooperation with the Fund on policies and payments, including in the context of a Staff Monitored Program; (ii) reconciling external debt; (iii) preparing a poverty reduction strategy; and, (iv) mobilizing donor resources to finance debt relief under the Heavily Indebted Poor Countries (HIPC) Initiative. As of end-May 2015, arrears to the IMF were US$328 million, while arrears to the World Bank and the African Development Bank (AfDB) were US$283 million and US$94 million, respectively.

4. The political and security situation remains very challenging. Complex clan politics and high turnover in the members of the economic team have undermined policymaking and limited TA and surveillance effectiveness: since September 2013, there have been three central bank governors and three ministers of finance. A new government took office on February 18, 2015 and presidential elections are planned for September 2016.

5. As a result of the civil war, all Somali state institutions are severely impaired. Improving governance in key state institutions is critical for progress on economic reconstruction and development. The FGS, working with the international community, has taken steps to improve governance based on the rule of law and the application of international good practices for fiscal and financial operations. IMF TA is largely devoted to enhancing governance in the ministry of finance and the Central Bank of Somalia (CBS). Rebuilding critical infrastructure and delivering basic social and economic services will be crucial for the new government to gain the trust of the Somali people, advance the process of national reconciliation, and to extend FGS authority over all parts of the country.

6. Global and regional risks arise from slower global growth and spillovers from Middle East unrest. These risks could lower demand for exports, reduce donor support, decrease remittance inflows, and prompt an influx of refugees (see RAM). The policy response should be perseverance with the reform agenda in light of the highly constrained room for maneuver.

7. Somalia-specific risks arise from tightening international regulatory and supervisory frameworks, insecurity, weak institutions, and the availability of data for economic management, as well as low revenue, lack of control over the national currency, and poorly developed financial system supervision. The protracted civil war has left institutions in disarray with few qualified staff. Capacity for data collection, compilation, analysis, and dissemination is limited. Poor revenue performance—against the backdrop of large expenditure commitments—is leading to further arrears accumulation. Credibility would be damaged if a currency reform were launched without adequate preparation. Delays in developing supervisory capacity could exacerbate problems linked to global de-risking, impeding remittances that support livelihoods.

Somalia: Risk Assessment Matrix3
Nature/Source of Main ThreatsOverall Level of Concern
Relative LikelihoodImpact if Realized
Global Risks
Structurally weak growth in key advanced and emerging economies (the “new mediocre”)HighMedium

Channel of transmission would be lower demand for exports and possible reduction in donor support.
Heightened risk of fragmentation/state failure/security dislocation in the Middle East and some countries in AfricaMediumMedium

Channel of transmission is reduction of remittances and influx of refugees.
Country specific risks
Tightening regulatory and supervisory frameworks in advanced and emerging marketsHighHigh

Channel of transmission is derisking, prompting banks to forego money transfer business and leading to lower remittances.
Institutional risk Protracted insecurity, weak institutions, and poor data availabilityHighHigh

Data compilation, analysis, and dissemination remain problematic
Fiscal risks Low revenue and weak expenditure controlHighHigh

Lack of revenue against the backdrop of large expenditure commitments would lead to further arrears accumulation.
Failed currency reform The CBS launches a currency reform without adequate preparationMediumHigh

The introduction of a new currency or new banknotes without proper systems in place would damage credibility.
Poor financial system supervision Lack of credible supervision and AML/CFTHighHigh

Delays in strengthening supervisory capacity lead to a reduction in remittance inflows, which support the livelihood of many Somalis.

Background and Recent Developments

A. Real Growth and Inflation

8. Humanitarian and social conditions in Somali are among the most daunting in the world. Close to 4 million people—around a third of the population—are in need of food assistance; infant mortality is more than one in ten; and, life expectancy is about 51 years.

9. Based on rudimentary data, the economy is growing while consumer price inflation remains moderate. Anecdotal evidence suggests that economic conditions improved rapidly in 2012-13, following years of disruption from war and internal strife. The recovery was led by growth in livestock and fisheries, and a very active private sector resurgence of the services industry, notably communications, construction, and money transfer services, mainly associated with the return of diaspora Somalis.

10. Economic activity is estimated to have expanded with real GDP rising by 3.7 percent during 2014. In nominal terms, GDP increased in 2014 by 6.6 percent to US$5.7 billion with the CPI rising by 1.3 percent (Figure 1 and Table 1). The most significant industries are: (i) agriculture, livestock, and fisheries; (ii) information and communications; (iii) wholesale and retail trade; and, (iv) financial services. For 2015, growth is projected at 2.7 percent with CPI inflation of 4.0 percent.

Figure 1.Recent Developments

Sources: Somali authorities; and Fund staff estimates and projections.

Table 1.Selected Economic and Financial Indicators, 2013-17
(IMF Quota = SDR 44.20 million)
(Population: 14 million, 2015 estimate)
(Per Capita GDP: US$425, 2015 estimate)
(Poverty Rate: n.a.)
(Main Export: Livestock)
EstimatedProjected
20132014201520162017
National income and prices
Nominal GDP in millions of U.S. dollars5,3525,7065,9536,3897,044
Real GDP, annual percentage change3.72.73.44.3
Per capita GDP in U.S. dollars402418425445479
Consumer Price Index (CPI), annual percentage change4.51.34.03.22.9
(In percent of GDP)
Central government finances 1/
Revenue and grants, of which:2.12.53.13.73.5
Grants 2/0.81.11.41.61.4
Expenditure, of which:2.22.63.13.73.5
Wages and salaries0.91.41.41.71.5
Capital expenditures0.00.00.20.30.3
Overall balance−0.1−0.10.00.00.0
Stock of domestic arrears0.60.81.10.90.6
(In millions of U.S. Dollars)
Central bank assets
Total assets, of which:58.857.3
Foreign assets31.030.4
Cash and cash equivalent including U.S. dollars in vault7.46.2
(In millions of U.S. Dollars; unless otherwise specified)
Balance of payments
Exports of goods and services7798198611,0231,145
Imports of goods and services3,3223,4823,6514,3374,855
Net factor income−425−450−467−555−621
Current transfers, of which:2,3122,4692,5312,9843,261
Remittances 3/1,3001,3331,3661,4001,435
Current account balance−656−644−726−885−1,070
(In percent of GDP)−12.3−11.3−12.2−13.9−15.2
Overall balance00000
External debt5,2595,294
Exchange rate
Market exchange rate (SOS/USD, period average)19,27620,227
Market exchange rate (SOS/USD, end of period)20,14920,265
Sources: Somali authorities; and Fund staff estimates and projections.

Budget data for the federal government. GDP data covers the territory of Somalia.

Includes only donor support provided through local treasury systems.

2013 data from Barclays Bank, PLC.

Sources: Somali authorities; and Fund staff estimates and projections.

Budget data for the federal government. GDP data covers the territory of Somalia.

Includes only donor support provided through local treasury systems.

2013 data from Barclays Bank, PLC.

B. Fiscal and Financial Governance

11. While governance of key state institutions has improved, considerable strengthening is required. Inland revenue collection is stymied by insecurity and the war-induced destruction of a compliance culture. Accounting and reporting operations will be strengthened by completing implementation of the Somalia Financial Management Information System (SFMIS). Much of the work aimed at strengthening the operations of the ministry of finance are fundamentally focused on improving the governance of public financial management (PFM) operations. Progress has also been made in establishing the offices of an accountant general and an auditor general to underpin financial governance for Somalia.

12. At time of restoration of contacts between Somalia and the Fund in 2013, the CBS no longer carried out traditional central banking operations. It had few staff of which merely a handful had a professional background in central banking. While recruitment of qualified staff from the diaspora remains challenging, several highly competent individuals with appropriate training have been appointed. These new staff are underpinning work on a new central bank organization. Key new units under construction are departments for: (i) accounting and finance; (ii) economics and statistics; (iii) internal audit; and; (iv) licensing and supervision. The near-term agenda also includes setting up units for management of international official reserves and for handling cash currency.

13. A Financial Governance Committee (FGC) was established on April 23, 2014 in response to worrisome governance developments. The FGC is a committee of the FGS with the objective of enhancing financial governance by monitoring, advising and assisting government in matters related to CBS governance, public sector contracting, procurement and commercial concessions, PFM, asset recovery, and fiscal federalism. The FGC is chaired by the minister of finance and consists of Somali and external partner representatives. Fund staff has appointed a technical expert in an advisory capacity.

14. Issues related to public sector contracting have attracted particular attention. Public procurement and the granting of commercial concessions were initially carried out in a nontransparent manner. Through the FGC, reviews are now made of all such contract over US$5 million. The FGC has recommended that certain contracts be renegotiated, amended, or cancelled. Furthermore, an interim regime has been adopted that will operate until specialized legislation, in line with international good practice, is in effect.

C. Fiscal

15. Fiscal policy is geared toward delivery of basic services in the context of a zero cash balance budget. Considerable expenditure pressure, deficiencies in revenue mobilization, unfulfilled donor pledges, and nascent political processes have produced unrealistic budgets. The funding shortfall has led the FGS to incur liabilities to local money transfer firms (MTFs), reduce assets, ration cash, and incur arrears to the defense forces, civil servants, and suppliers.

16. The federal budget for 2013 was the first post-conflict budget. The 2013 budget consisted primarily of salary and security expenditures. Cash was limited due to revenue shortfalls, leading to arrears accumulation of US$30.4 million, almost 26 percent of expenditure.

17. The budget outcome for 2014 underscores deficiencies in revenue mobilization (Table 2). Revenue (including grants) in 2014 of US$145.3 million underperformed the budgeted US$188.5 million. International assistance outside the budget is significantly higher than direct assistance (Table 3).4 Trade taxes and foreign grants remain the largest sources of revenue. Through strict cash rationing, expenditure was limited to US$151.1 million—30 percent less than the budgeted US$216.2 million. Financing of US$22.9 million (equivalent to 27.2 percent of domestic revenue) was through arrears accumulation and liquidation of recovered government assets.

Table 2.Federal Budget, 2013-17(Millions of U.S. Dollars)
20132014201520162017
ActualBudgetActualBudgetProj.Proj.Proj.
1. Revenues and grants110.8188.5145.3239.9183.7238.3247.0
Revenue69.2115.384.3123.4100.4133.4150.5
Tax revenue65.1108.073.8103.177.9108.7123.4
Tax on income, profit and capital gains0.75.11.14.62.15.06.0
Taxes on goods and services5.634.08.525.89.930.033.0
Trade taxes58.769.064.372.766.073.784.4
Non-tax revenue4.17.310.520.322.524.727.2
Grants 1/41.773.261.0116.583.3104.996.4
2. Total expenditure117.4216.2151.1239.9183.7238.3247.0
Current117.4203.8150.9226.0169.7219.3226.3
Wages and salaries50.494.377.2108.381.9108.3108.3
Goods and services56.068.857.682.758.482.784.3
Transfers to sub-national government 2/7.510.110.114.815.216.017.9
Contingency3.53.83.83.22.93.03.0
Repayment of arrears and advances0.026.82.217.011.39.312.8
Capital 2/0.012.40.213.913.919.020.6
3. Overall balance (1 - 2)−6.6−27.7−5.80.00.00.00.0
4. Liquidation of recovered government assets5.80.00.00.0
5. Accumulation of new arrears17.132.90.00.0
Financing (4 + 5)22.932.90.00.0
Memorandum items:
Repayment of arrears (from expenditure)0.026.82.217.011.39.312.8
Stock of domestic arrears (end of year)30.445.328.367.057.744.9
Sources: Somali authorities; and Fund staff estimates and projections.

Includes only donor support provided through local treasury systems.

Expenditures from hypothecated revenue in 2015.

Sources: Somali authorities; and Fund staff estimates and projections.

Includes only donor support provided through local treasury systems.

Expenditures from hypothecated revenue in 2015.

18. On December 31, 2014, parliament approved a 2015 budget of US$239.9 million with a highly optimistic revenue forecast, setting the expenditure ceiling 58.8 percent over the 2014 outcome of US$151.1 million. The expenditure envelope was not underpinned by prudent budgeting. Infrastructure investment and social spending are crowded out by wages (Box 2). Analysis of five months of budget data points to a revenue shortfall of US$56.3 million for the year, underscoring the need to adjust expenditure in a revised budget.

Box 2.Public Expenditure

Expenditure is concentrated on wages and goods and services. The share of wage compensation is about half of expenditure while goods and services are a third. This concentration crowds out resources for interest payments, subsidies, social benefits and capital.

Infrastructure investment is crowded out by spending on wages. Investment in schools, hospitals, and clinics is vital for the government to meet its obligation to provide essential goods and services, while investment in roads, bridges, ports, and airports supports economic growth.

The share of wages—about 45 percent—is higher than in comparable countries. Wages as a share of expenditure are about 30 percent in Africa and in low income countries. Accordingly, the FGS should focus on containing the wage bill.

Box 2. Table 1.Composition of Public Expenditure
Millions of U.S. DollarsPercent of spending
201320142015201320142015
ActualActualBudgetActualActualBudget
Total expenditure117.4151.1239.9100.0100.0100.0
Current117.4150.9226.0100.099.994.2
Wages and salaries50.477.2108.342.951.145.2
Goods and services56.057.682.747.738.134.5
Interest and other charges0.00.00.00.00.00.0
Subsidies0.00.00.00.00.00.0
Transfers to sub-national government7.510.114.86.46.76.2
Social benefits0.00.00.00.00.00.0
Contingency3.53.83.23.02.51.3
Repayment of arrears and advances0.02.217.00.01.57.1
Capital0.00.213.90.00.15.8
Sources: Somali authorities; and Fund staff estimates and projections.
Sources: Somali authorities; and Fund staff estimates and projections.
Box 2. Table 2.Public Wage Bill International Comparison
Wage bill, as percent of:
SpendingRevenueGDP
Somalia45.060.00.9
Kenya37.738.48.1
Burundi25.460.211.2
Tanzania23.337.56.5
Eritrea23.151.010.0
Malawi16.017.85.8
Rwanda13.012.73.5
Uganda12.511.81.7
Africa30.429.56.5
Low-Income Countries28.627.95.2
Note: General government, consolidated central government or budgetary central government, annual averages for 2000-08 depending on data availability. For Somalia data correspond to 2014 actual budget. Source: IMF.
Note: General government, consolidated central government or budgetary central government, annual averages for 2000-08 depending on data availability. For Somalia data correspond to 2014 actual budget. Source: IMF.

D. Financial Sector

Structure and development of the financial sector

19. At end-June 2015, the formal financial sector consisted of the central bank, six banks with provisional licenses, and nine licensed money transfer firms (MTFs). The formal financial sector (outside that under the control of the Bank of Somaliland) is small and nascent while there is reportedly a large informal sector.5 Each bank maintains one office, four of which are in Mogadishu, and one each in Somaliland and Puntland. As of end-June 2015, thirteen MTFs had pending applications for banking licenses. The MTFs provide fund transfer services throughout the country and internationally via Dubai. Balance sheets and financial statements for banks and MTFs are not available.

20. The CBS is responsible for: (i) the national currency; (ii) the payments system, including as the fiscal agent of government; (iii) management of official international reserves; and, (iv) licensing and supervision of banks.

21. The Central Bank of Somalia (CBS) faces challenges in building financial sector supervision due to technical and human resource constraints. In addition, oversight of anti-money laundering and combating the financing of terrorism is not in line with international standards. Recently, a number of international banks have closed their correspondent accounts with Somali MTFs, threatening the inflow of remittances.

Monetary policy and national currency

22. Monetary policy instruments do not exist, the exchange rate of the Somali shilling is freely floating, and the de facto exchange regime is free of restrictions or multiple currency practices. The status of the national currency is complex (Box 3). The economy is predominantly dollarized in an unregulated environment. Cash currency is scarce, particularly in lower denominations, and Somali banknotes issued by the CBS are not readily available, creating problems for the poorest. With a general lack of technical, human, and financial resources, the CBS needs considerable assistance to change the status quo. Political pressure is mounting for an early currency reform.

Box 3.National Currency

The de jure currency for all of Somalia is the Somali shilling (SOS). According to Somali law, the CBS is in charge, and the sole supplier, of the national currency. However, since 1991, no banknotes have been issued by the CBS. Instead, a single denomination—the SOS 1,000 (value about US$0.05)—has been widely distributed in different forms of counterfeit notes estimated to account for about 95 percent of SOS notes in circulation. Some versions were printed abroad, others in Somalia, typically funded by local businesses. Virtually all SOS notes in circulation are de facto accepted as a means of payment although counterfeits are readily identifiable.

The de facto currency in Somalia (excluding Somaliland) is the U.S. dollar estimated to account for about 95 percent of currency in circulation. Dollar banknotes are used as cash currency and neighboring country currencies are used in border areas. Mobile phone payments, with air time transactions denominated in U.S. dollars, are also widely used. Air time also serves as a transactional sub-denomination of the U.S. dollar, as do SOS notes, but to a more limited extent. In Somaliland, the de facto monetary authority—the Bank of Somaliland, an institution not recognized in the rest of Somalia—has issued its own currency, the Somaliland shilling, since 1994. That currency is neither recognized nor co-circulating in the rest of Somalia.

Central bank modernization

23. Against the backdrop of many years of challenging conditions, the CBS is not yet in a position to operate as a modern central bank. The CBS board of directors was established, and started operations, only in April 2014. As of end-June 2015, the board had had five meetings and had approved and implemented a first set of by-laws for the CBS. Work on a new organizational structure and human resource practices are underway at the CBS and the ministry of finance. The CBS has also started to implement a memorandum of understanding that clarifies the roles and obligations of the CBS as the fiscal and financial agent of the state.

24. The CBS has prepared financial statements for 2014 (Table 4). The preliminary balance sheet shows assets of US$57.3 million, primarily gold, foreign exchange assets, and property and equipment. The nominal exchange rate of the SOS has remained broadly stable in recent years.6 Since the value of SOS in circulation is unknown, this liability was not included. The residual CBS equity and reserves was US$49.7 million.

Table 3.Total Planned Aid Disbursements, 2014-15(Millions of U.S. Dollars)
20142015
Institutional Capacity Development (ICD)1416
Peace and Statebuilding Goals (PSG)818478
Inclusive Politics5875
Security16126
Justice249
Economic Foundations261160
Revenue and Services314208
Total planned aid disbursement = ICD + PSG 1/832494
Total planned federal budget expenditure216240
Ratio of total planned aid disbursement to federal budget planned expenditure3.92.1
Source: ACU Aid Flow Mapping, October 2014.

Includes some budget support.

Source: ACU Aid Flow Mapping, October 2014.

Includes some budget support.

Table 4.Summary Accounts of The Central Bank of Somalia, 2013-14(Thousands of U.S. Dollars)
Preliminary 2013Preliminary 2014
Foreign assets30,96430,448
Gold119,54019,551
Foreign exchange11,42510,897
Cash and cash equivalent7,4096,206
Somali shillings38911
US dollars7,0206,195
Claims on government9000
Claims on treasury9000
Claims on deposit money banks00
Other assets19,47920,621
Property and equipment19,47420,618
Other assets52
Assets58,75257,274
Liabilities58,75257,274
Reserve money21,4461,683
Currency outside CBS
Currency with DMBs
Currency outside DMBs
Commercial banks’ reserves with CBS
Demand deposits11,4461,683
Time and savings deposits, of which:
Commercial banks
Government deposits14,3932,783
Government deposits, of which:35,3922,783
Treasury single account12
Asset recovery proceeds9,0010
Other liabilities1203,120
MTB deposits120120
Earmarked donor funds3,000
Other00
Equity and reserves42,79249,687
Memorandum items:
Somali shillings per US dollar, end-period20,14920,265
Sources: Central Bank of Somalia; and Fund staff estimates.

Gold valued at market price.

Deposits by Parliamentarians are estimated.

Includes Treasury and Development Bank deposits.

Sources: Central Bank of Somalia; and Fund staff estimates.

Gold valued at market price.

Deposits by Parliamentarians are estimated.

Includes Treasury and Development Bank deposits.

E. External

25. The 2014 current account deficit is estimated at US$644 million (11.3 percent of GDP) (Table 5). Trade consists mostly of exports of livestock to GCC countries and imports of foodstuffs from neighboring countries and the Indian subcontinent. The trade and income deficits were US$2,663 million and US$450 million, respectively, partially covered by remittances of US$1,333 million and other transfers of US$1,137 million. The deficit was financed by foreign direct investment of US$434 million, especially in telecommunications, electricity, and hotels, and donor capital transfers of US$150 million.

Table 5.Balance of Payments, 2013-17(Millions of U.S. Dollars)
PreliminaryProjected
20132014201520162017
Current account balance−656−644−726−885−1,070
Trade balance−2,543−2,663−2,790−3,314−3,710
Exports, f.o.b.7798198611,0231,145
Imports, f.o.b.−3,322−3,482−3,651−4,337−4,855
Income (net)−425−450−467−555−621
Receipts3536384550
Payments−460−486−505−600−671
Current transfers (net)2,3122,4692,5312,9843,261
Private, of which:2,2702,4162,4142,8463,106
Remittances 1/1,3001,3331,3661,4001,435
Official 2/4253117138155
Capital account and financial account6566447268851,070
Capital account150150150178199
Financial account (net)506494576707871
Foreign direct investment (net)446434516636792
Other net capital flows 3/6060607179
Errors and omissions00000
Overall balance00000
Memorandum items:
Nominal GDP5,3525,7065,9537,0717,916
Current account (percent of GDP)−12.3−11.3−12.2−12.5−13.5
External public debt5,2595,294
Sources: UN Comtrade; FGS estimates; and Fund staff estimates and projections.

2013 data from Barclays Bank, PLC.

Includes direct budget support.

Insurance and technical reserves.

Sources: UN Comtrade; FGS estimates; and Fund staff estimates and projections.

2013 data from Barclays Bank, PLC.

Includes direct budget support.

Insurance and technical reserves.

26. External debt was estimated at US$5.3 billion (93 percent of GDP) at end-2014, preponderantly arrears (Table 6). Debt data cover most creditors, exclude commercial debt, and show obligations to: (i) multilaterals (US$1.5 billion); (ii) Paris Club creditors (US$2.3 billion); and, (iii) Non-Paris Club creditors (US$1.5 billion). Data are compiled and validated by a dedicated finance ministry unit, with TA from multilaterals, which maintains a dialog with creditors and is redressing data gaps including loan size validation and bilateral loan terms.7 Based on a preliminary assessment, Somalia lacks the ability to service its debt in the medium term.

Table 6.External Public Debt, 2014(Millions of U.S. Dollars)
Total stock outstanding5,294
Multilateral creditors1,518
International Monetary Fund341
World Bank500
AfDB Group135
Arab Fund for Economic and Social Development181
International Fund for Agricultural Development31
OPEC Fund for International Development35
Arab Monetary Fund285
Islamic Development Bank11
Bilateral creditors3,776
Paris Club creditors 1/2,304
Denmark2
France401
Italy590
Japan122
Netherlands7
Norway2
Spain38
United Kingdom82
United States918
Russia141
Non-Paris Club creditors1,472
Algeria2
Bulgaria9
Iraq66
Kuwait 2/176
Libya5
Romania6
Saudi Arabia375
Serbia2
United Arab Emirates832
Notes:The table contains preliminary figures.China cancelled its debt in 2005.Loan claims were converted using the U.S. dollar year-end exchange rates. The rates for end-2014 are: USD/SDR 1.45 and USD/EUR 1.21.Sources: Somalia Debt Management Unit; World Bank; and AfDB.

For Paris Club creditors, extrapolations of known penalty interest rates were applied. The average penalty interest rate is about 3.4%. For Non-Paris Club creditors, late interest rate is only known for Kuwait. No penalty interest has been included for 2014.

Data includes the loans from the Kuwaiti Development Fund. Additional loans from the Kuwaiti Central Bank need to be verified.

Notes:The table contains preliminary figures.China cancelled its debt in 2005.Loan claims were converted using the U.S. dollar year-end exchange rates. The rates for end-2014 are: USD/SDR 1.45 and USD/EUR 1.21.Sources: Somalia Debt Management Unit; World Bank; and AfDB.

For Paris Club creditors, extrapolations of known penalty interest rates were applied. The average penalty interest rate is about 3.4%. For Non-Paris Club creditors, late interest rate is only known for Kuwait. No penalty interest has been included for 2014.

Data includes the loans from the Kuwaiti Development Fund. Additional loans from the Kuwaiti Central Bank need to be verified.

Outlook

27. Despite daunting challenges and risks, the outlook remains broadly favorable. Diaspora Somalis are driving growth, largely in communications, construction, and money transfers. With progress on the security front, and in the absence of drought, modest growth is expected. Nevertheless, growth will remain inadequate to redress poverty and gender disparities.8 Should security worsen or drought return, growth will be at risk. The 2016 presidential elections could set the stage for normalization of the political process, or they could disrupt reform efforts.

Policy Dicussions

Discussions focused on immediate and medium-term issues, including possible quick wins. In the short run, improving fiscal management will be critical, including raising revenue and grants and prioritizing expenditures, as well as technical issues of budget control. Looking forward, the discussions explored the key building blocks for stability and growth, mostly related to setting in place institutions, managing public resources, and facilitating financial sector development.

A. Strengthening Governance and Institutions

Institutions

Background

28. Continued progress in building sound and accountable institutions is critical for the restoration of public confidence in government and the CBS, and for poverty reduction, inclusive growth and addressing gender disparities. Institutions need strengthening through phased adoption of international standards and codes, and improved systems for transparency and accountability. Staff will continue to provide TA in key areas of IMF expertise (see Box 1). Discussions focused on key institutions in economic, financial, and monetary areas, to: (i) improve legal and regulatory frameworks; (ii) strengthen procurement systems; (iii) bolster expenditure control; and, (iv) enhance revenue administration.

29. Statistical system development is a priority. The statistics law enacted in 1970 provides for establishment of a statistical office and protects data confidentiality. Nevertheless, the lack of statistical capacity, combined with fragmented administration, impedes development of basic economic statistics. The statistics law is being updated, and priorities are being set for development of the statistical system and dissemination of statistics.

30. Data provision has significant shortcomings that hamper surveillance. Source data are limited for national accounts, the fiscal and external sectors, and the banking system. TA to redress these deficiencies is supported by the recently launched trust fund. Identified measures include updating the statistics law and strengthening institutions and staff.

Staff’s views

31. Staff emphasized the need for improved accounting systems and better regulatory practices. The ministry of finance should enhance its capacity to prepare and manage the annual budget, and improve communication with ministries, departments, agencies, parliament, and citizens.

32. Staff recommended that responsibility for statistical activity be clearly defined among stakeholders in the national statistical system. Responsibility for preparing national accounts, price indexes, and balance of payments must be allocated across institutions. The role of state and regional governments in the statistical system should be specified. Procedures must be established to collect source data for compilation of economic statistics.

Authorities’ views

33. The authorities supported of these recommendations, indicating a desire for demand-driven TA from the international community. Areas of future demand would be identified as strategic priorities. They welcomed the continued role of TA from the staff.

Natural resource management

Background

34. Somalia has large potential for revenue from natural resources, particularly hydrocarbons, so effective concession management and a suitable fiscal regime are critical. Preliminary seismic survey results are promising. The FGS has signed several concession contracts to initiate resource exploitation and raise revenue despite the absence of a clear legal and regulatory framework. While transparency is paramount, sound institutions are required to manage natural resources and specialized expertise is needed to negotiate contracts effectively. A draft Public Procurement, Disposal, and Concessions Act has been before parliament since April 2014.

35. Resource sharing between the center and the regions, as well as the authority of the regions to make concession agreements, need to be clarified. Work is underway on agreement between the FGS and sub-national entities on resource sharing.

Staff’s views

36. Staff stressed the importance of having institutions, policies and legislation for effective and transparent management of natural resources. Staff urged the authorities to develop capabilities in negotiating resource management contracts and to establish an appropriate fiscal regime. Staff discussed the steps necessary to build institutions for managing natural resources and making contracts for their exploitation in a manner consistent with welfare maximization. Staff encouraged the authorities to incorporate best practices in their resource management strategy, which should facilitate private sector participation and ensure transparency.

37. The mission urged the authorities to seek consensus regarding fiscal federalism, including responsibilities for service delivery, and revenue collection and sharing. Planning frameworks for federal and sub-national entities are required. Plans need to be linked to the budget and a harmonized revenue strategy, and reflect realistic forecasts.

Authorities’ views

38. The authorities agreed that their natural resource management framework needs improvement and recognized the importance of delineating responsibilities between the FGS and sub-national entities. The authorities confirmed that agreement on fiscal federalism is essential. Delineation of responsibilities within the FGS will also be important. Policies and procedures are being established for the department of national assets within the ministry of finance.

39. The authorities informed staff of plans to strengthen the concession management framework. Under the donor-supported financial governance program, a strategy for capacity building in concession management is being developed, including the legal and regulatory framework. Work on this agenda is supported by the FGC and the World Bank.

40. The authorities welcomed the review of concession contracts by the FGC, which resulted in the termination and renegotiation of some contracts. Legal support for contract review has been financed by the AfDB.

B. Fiscal

Background

41. Staff and donors have been providing technical assistance in fiscal areas ranging from budget preparation to tax policy. Urgent efforts are needed to strengthen budget credibility by limiting expenditure commitments to available resources. While staff has initiated discussion of the fiscal regime, policy advice requires clarity regarding the nature of the federation, particularly fiscal relations between the center and the regions. Staff will continue to provide TA in key areas of IMF expertise (see Box 1).

42. The budget outcome for 2014 and indications to May 2015 point toward significant underperformance in domestic revenue and grants. Tax collection was below target due to delays in implementation of measures to raise revenue. Dependence on grants is large, exposing the budget to uncertainties in donor disbursements. All capital spending is donor funded.

43. Despite the implementation of stricter expenditure rules (including sequestration rules), arrears will rise if the revenue target is not achieved. The expansion in the number of ministries and government entities has left Somalia with a payroll-centric budget. Investment and social spending are crowded out by spending on wages, which are about 45 percent of expenditure in 2015. Revenue has been revised downward substantially. As of mid-June, the government was preparing a revision of the 2015 budget in response to revenue shortfalls.

Staff’s views

44. Staff stressed the importance of revising the 2015 budget, adopting a strategy to avoid arrears, and eliminating existing arrears. Staff underscored the need to provide for arrears repayment in future budgets and strengthen controls to prevent arrears accumulation. Staff welcomed the arrears management plan, while noting that implementation will be challenging.

45. Staff recommended that the authorities develop and implement an emergency revenue mobilization plan and conduct an expenditure review. Revenue options include taxing hotels, telecommunications companies, and large employer payrolls. Staff urged: (i) designing laws and regulations to support revenue initiatives; (ii) implementing plans for tax administration and collection improvement; and, (iii) enhancing efforts to identify and secure reliable and timely budget support from the international community. A review of expenditure is needed to identify options to rebalance the composition of the budget and contain spending in light of anticipated revenue expansion in the near term, improve efficiency, and help better focus spending on poverty reduction.

46. Regarding budget formulation in the years ahead, staff stressed the need to adopt policies to address important vulnerabilities. Fiscal rules, such as targets for the share of wages or capital, can help ensure fiscal sustainability and a desirable composition of spending, and should be accompanied by a medium-term fiscal framework to guide their realization.9 To improve accountability, staff recommended that line ministry budgets reflect resources disbursed from the contingency reserve. Staff encouraged publication of data on off-budget assistance in an addendum to the budget.

47. Staff stressed that Somalia should eschew external borrowing (especially on nonconcessional terms), as this would complicate a debt workout. Staff urged continued avoidance of selective debt servicing of bilateral creditors, as this would complicate eventual normalization of financial relations with creditors.

Authorities’ views

48. The authorities informed staff about their plan to strengthen revenue and prioritize expenditures in a supplementary budget for 2015. An amended spending plan was discussed with the Council of Ministers in June. The authorities confirmed the need for plans aimed at emergency revenue mobilization and expenditure review, noting that political support is required for expenditure reductions.

49. The authorities presented an arrears management strategy to eliminate domestic arrears, which are estimated to have increased by US$14.9 million during 2014 to US$45.3 million at end-2014. The strategy includes steps to perform a stock-take, verification, assessment, and clearance for existing arrears. Moreover, it designs policies to avoid further arrears, strengthen commitment controls, improve cash management, and prioritize repayments.

Public financial management

Background

50. Although considerable progress has been made in laying the foundation for PFM, significant reform is required to bring PFM systems closer to international standards. Improvement in budget credibility—consistent with absorptive capacity—is required to assist fiscal discipline and improve the efficacy of public spending.

Staff’s views

51. Staff identified multilateral and bilateral donors providing TA and recommended a PFM agenda for 2016-20 to guide engagement with the international community. Staff focused on the reform agenda and implementation modalities to identify and address gaps in policy, processes, and capacity. Identified weaknesses include: (i) budget credibility and sustainability; (ii) cash management and commitment controls; (iii) IT systems; (iv) payroll management; (v) accounting and reporting; and, (vi) executive and legislative oversight. Staff also emphasized the need to adopt comprehensive and properly sequenced budget preparation and execution reforms, including arrears management.

52. Staff welcomed the significant progress toward implementation of an effective SFMIS, which would allow comprehensive ex ante recording of liabilities, as well as strengthened control of spending and timely and accurate financial reporting. Staff recommended that SFMIS development be reinforced with relevant procedures and practices including full implementation of the treasury single account. Commitment controls need to be incorporated in the SFMIS to identify arrears. Rules and procedures underpinning controls should be institutionalized.

Authorities’ views

53. The authorities reaffirmed their commitment to leading and implementing PFM reforms. They welcomed the PFM review and suggestions for a new reform plan for 2016-20, and acknowledged the imperative of placing public finances on a sustainable path and closing the gap with international standards. A fully functional SFMIS is being rolled out and PFM procedures and practices will be institutionalized across government. The authorities observed that their 2013-16 PFM reform action plan is optimistic, and that future reform plans should be more focused, prioritized, and sequenced.

C. Financial Sector

54. With the economy largely dollarized and in the absence of policy instruments, the CBS is unable to conduct monetary policy. The preliminary step toward developing a monetary policy framework would be to compile a monetary survey, underpinned by development of the CBS’s institutional capacity.

55. Staff reviewed financial sector developments focusing on: (i) preparing monthly financial statements; (ii) strengthening the organizational and governance structure of the CBS; (iii) implementing accounting and financial reporting systems and practices; and, (iv) establishing a robust licensing and supervision process. Internal and external auditors have been appointed. The authorities have requested TA to develop strategies to address dollarization, payment systems limitations, and monetary policy constraints.

56. The CBS balance sheet should remain broadly stable. The lack of financial intermediation, inability of the government to accumulate financial assets, and limited role of the shilling should preclude major changes to CBS balances.

Financial governance

Staff’s views

57. Strengthening CBS organization is essential and steps are required to address the lack of appropriate regulations. Establishment of an executive committee is important to bolster governance and a legal unit is needed. The CBS board should approve regulations to ensure consistent implementation of the CBS act. Areas that deserve special attention include: (i) accounting and financial reporting; (ii) auditing; (iii) collecting and handling information from supervised institutions; and, (iv) establishing a robust licensing and supervision process.

58. Action is needed to strengthen the role of the CBS as sole manager of international reserves. The CBS should: (i) establish a reserves management unit; (ii) approve by-laws for foreign reserve management; and, (iii) utilize World Bank expertise to bolster knowledge and capacity. Efforts to recover missing, lost, or stolen financial assets should be intensified under the leadership of the CBS.

Authorities’ views

59. The authorities stressed their commitment to enhancing governance at all levels with the aim of being in line with international best practice. The CBS agreed that establishment of an executive committee would bolster governance. They informed staff of potential donor resources available to support this endeavor, and the need for review of the allocation of responsibilities. They underscored the importance of TA and training.

Monetary and exchange rate policy framework

Background

60. Current monetary conditions do not serve the country well and need to be addressed. The monetary regime and the situation with respect to currencies in actual circulation are not the results of specific policy choices, but the outcome of chaotic conditions since the early 1990s combined with the operational weakness of the CBS. Moreover, the policy framework and regime have not been determined by the authorities. The absence of exchange restrictions supports trade and the vibrant expansion of the private sector.

Staff’s views

61. Staff noted that the choice of an appropriate monetary policy framework and exchange rate regime contains several options. Options range from dollarization or a currency board-type arrangement to a freely floating exchange rate. In the short run, staff sees no alternatives to de facto dollarization.

62. Introduction of a new currency is complex and costly. Staff reiterated that currency reform must be prepared properly. Staff discussed prerequisites and modalities for successful currency reform: (i) building technical capacity; (ii) mobilizing financial resources; (iii) planning and conducting currency conversion; and, (iv) ensuring policy consensus and broad-based political support. Staff also discussed Article VIII obligations and exchange restrictions (see the Informational Annex).

63. At this time, the CBS lacks the capacity and resources for undertaking a comprehensive currency reform. International experience shows that the direct costs of an ill-prepared currency reform are large and reputational losses can be considerable. Accordingly, staff recommended that priority be given to an agreed framework for the preparation, with extensive international support, of a roadmap that would provide options for the authorities’ eventual decision on a currency reform.

Authorities’ views

64. The authorities welcomed a discussion on options for a monetary policy and exchange rate framework, including the identifying modalities for successful currency reform. Although there is no consensus on the currency reform, they initially stressed the importance that successive governments have attached to the role of the national currency. Since May 2015, parliament has escalated pressure on the CBS to issue new Somali banknotes.

65. The CBS governor underscored the importance of a currency reform strategy and consensus on key reform measures before proceeding. The authorities are discussing options including issuing the lowest denomination banknote, which they believe is important for the poor and those living in remote areas.

66. The authorities confirmed that the de facto currency is the U.S. dollar and that they enforce no restrictions on transfers. Accordingly, the making of payments for all international transactions is free of restrictions. The de jure regime is under discussion.

67. The authorities highlighted the importance of external advice and financing for a successful currency reform. Extensive TA from staff and collaborating central banks will be requested. In addition, substantial financial support from donors will be required.

Financial sector developments

68. While the CBS has insufficient capacity to license and supervise financial institutions, they are taking steps to address the threat to remittance flows. Prudent growth of financial intermediation requires bolstering capacity in critical areas including bank licensing and supervision, anti-money laundering and combating the financing of terrorism. Recently, a number of international banks have closed their correspondent accounts with Somali MTFs, threatening the inflow of remittances. In response, the authorities have launched a multi-agency task force on remittances. Moreover, the authorities, in collaboration with donors, have established an advisory council to facilitate remittances to Somalia. The CBS and the World Bank have agreed on the appointment of a “Trusted Agent” to supervise MTFs and help build capacity in licensing and supervision.

Staff’s views

69. The CBS has taken welcome steps to establish a formal financial sector. Staff agreed with the CBS that the number of licensed banks should not be increased until the supervisory capabilities of the CBS have been enhanced. Nevertheless, the practice of awarding provisional banking licenses should cease, as it has no legal basis in the CBS act or the financial institutions law.

70. Decisive action is needed to address capacity weaknesses in licensing and supervision. Elaboration of a financial sector roadmap will be a critical first step. Preparing and approving additional prudential regulations and ensuring compliance, as well as strengthening the AML/CFT framework, are also priorities. Staff is providing advice in these areas, supported by collaborating central banks.

71. International remittances to Somalia must not be jeopardized. Staff urged the authorities to move swiftly to build credibility in licensing and supervision. The initiative to establish a trusted agent may mitigate the threat to remittance flows.

Authorities’ views

72. The authorities were in broad agreement with staff regarding capacity building. They emphasized the need for external technical support for human capacity building and drafting regulations.

73. The CBS board has decided to halt issuance of additional bank licenses until applicants fulfill basic requirements. Consequently, nine licensing requests are on hold pending compliance with the following requirements: (i) adequate capital; (ii) an established board of directors; (iii) proper accounting systems; (iv) internal auditing; (v) non-concentrated shareholding; (vi) ownership of a national (non clan-based) character; and, (vii) an approved business plan. Furthermore, the CBS informed staff that licensed banks will also have to meet these requirements, and have until the end of the year to comply.

Staff Appraisal

74. Somalia is recovering from decades of conflict. Protracted civil war has left weak institutions and sparse human capital. The government in Mogadishu is broadening its domain while building institutions that could lead toward prosperity. The FGS has garnered broad international support and Somalia has been welcomed back as an active member of the Fund.

75. Despite tremendous progress, challenges remain daunting and risks are ubiquitous. Complex politics and nascent political institutions continue to undermine policymaking. Slower global growth could lower demand for exports, reduce donor support, and decrease remittance inflows. Remittance inflows are also at risk due to heightened global concerns about terrorist financing coupled with weak Somali bank supervision.

76. Economic activity is picking up while consumer price inflation remains low. Real growth in 2014 was 3.7 percent and medium-term growth should be modest, supported by security improvements. Inflation has been and should remain in low single digits.

77. Concerted action is needed to build institutions for sustainable, inclusive growth and to reduce poverty and address gender disparities. Sound and accountable economic and financial governance and an enabling environment for the private sector are critical for the restoration of public confidence in government. Data provision has serious shortcomings that significantly hamper surveillance. Data weaknesses preclude a debt sustainability assessment and external stability analysis. Remedial measures needed to lay the foundation for improved data provision and surveillance would entail gradual adoption of international standards and codes, measures to implement accounting systems and better regulatory practices, and clarity regarding delineation of authority between the FGS and sub-national entities. Clarity is needed regarding delineation of authority between the FGS and sub-national entities.

78. Urgent efforts are required to set in place sound mechanisms and institutions to ensure that prospective natural resource wealth is well managed. Effective and transparent concession management will require building institutions to ensure that natural resource exploitation maximizes benefits for Somalis. International best practices must be integral to the resource management strategy.

79. Decisive steps are necessary to build fiscal discipline, underpinned by realistic budgeting and effective implementation systems. Emergency revenue mobilization and an arrears strategy will tackle immediate problems, supported by expenditure rationalization. Realistic budgeting within a medium-term fiscal framework, supported by fiscal rules and reliable, transparent reporting, is urgently required.

80. Currency reform should be postponed until prerequisites are in place. Failed efforts would create significant direct losses as well as reputational costs. Currency reform should adhere to a well-designed roadmap, including building adequate technical and human capacity.

81. Swift action is required so that remittances can be channeled through the international banking system. Elaboration of a financial sector roadmap will be a critical first step to build credibility in licensing and supervision. Other priorities include preparing and approving additional prudential regulations and ensuring compliance.

82. It is recommended that the next Article IV consultation with Somalia be held on the standard 12-month cycle.

The 2012 interim constitution underpins efforts to introduce a modernized legal system. However, implementation of laws on a nationwide scale continues to meet formidable challenges. Staff from the African Development Bank, IMF, and World Bank have been providing assistance.

A debt sustainability assessment and external stability analysis were not possible because of data weaknesses, including the need to validate some figures on non-Paris Club debt and collect information on individual loans.

The Risk Assessment Matrix (RAM) shows events that could materially alter the baseline path (the scenario most likely to materialize in the view of Fund staff). The relative likelihood of risks listed is the staff’s subjective assessment of the risks surrounding the baseline. The RAM reflects staff views on the source of risks and overall level of concern as of the time of discussions with authorities.

Donor support was provided predominantly off budget, directly financing large infrastructure and capital projects, humanitarian assistance, and the wages of some military and security personnel.

With one exception, financial institutions operating in Somaliland are licensed and supervised by the Bank of Somaliland, none of which are recognized by the CBS.

The SOS exchange rate has remained broadly stable in recent years at US$1 equaling SOS 20,000. During May 2015, the rate depreciated briefly to SOS 23,500 in response to a sudden influx of new, counterfeit notes.

In the dialogue with creditors, a second meeting of the technical working group took place on the sidelines of the 2015 IMF-World Bank Spring Meetings.

Preliminary data indicate significant income inequality. Consumption in nomadic households is 28 percent of that in urban households.

In conjunction with an annual budget, a medium-term fiscal framework typically sets out a three-year plan.

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