Abstract
Enhanced Heavily-Indebted Poor Countries (HIPC) Initiative-Preliminary Document
Our Somali authorities thank staff for the constructive engagement and continued support in their efforts towards debt relief. They value Fund advice as well as the support from the international community and believe that reforms are key to the achievement of their national development goals.
Somalia has continued to make significant progress in efforts to rebuild key political, and economic institutions that are critical in efforts to place the economy onto a sustainable growth path. Despite the progress, the country remains fragile, constrained by low growth outcomes alongside widespread poverty. As a result, 69 percent of the population is estimated to live on less than $1.90 per day with deeper poverty levels among rural and internally displaced populations.
To tackle the social and economic challenges, the authorities launched an extensively consulted Ninth National Development Plan (NDP9) on September 2019. The plan, which outlines a comprehensive interim poverty reduction strategy, will guide the government’s reform agenda. The NDP9 aims to promote inclusive and accountable politics, improve security and rule of law, enhance inclusive growth and social development.
Reform Implementation
Since the formation of the permanent government in 2012, Somalia has steadfastly implemented, transformative reforms with the support of international development partners. The comprehensive reforms were aimed at restoring macroeconomic stability, rebuilding policy and institutional infrastructure and improving security conditions. As a result, public finance management has improved together with the supervisory capacity of the Central Bank of Somalia (CBS). The financial sector continues to strengthen on the back of an enhanced regulatory regime and capacity to implement AMF/CFT framework.
Going forward, the authorities will remain steadfast in the implementation of reforms, in line with their development plan and the IMF supported program. They view reforms as essential to delivering long term growth and lifting citizens out of poverty. In this respect, they will further strengthen budget preparation and public finance management, significantly increase domestic revenue by expanding the tax base, restructure the central bank and strengthen its operational capacity, and improve compliance with AML/CFT framework. The authorities will also continue to put in place the building blocks for a workable and functional fiscal federalism framework through dialogue and cooperation with all federal member states.
Performance under the 4th UCT Staff Monitored Program
The authorities continue to post solid performance under the program. All indicative targets and structural benchmarks under the second review were met for the September/October 2019 test date. The program remains firmly on-track relative to the December 2019 and February 2020 targets. Accordingly, Somalia has stablished the six months track record of satisfactory performance under the UCT SMPIV, required for the HIPC Decision Point.
Eligibility for Assistance under enhanced HIPC Initiative
As noted by staff, Somalia’s external public debt stood US$5.3 billion at end-2018 of which 95 percent was in arrears with no outstanding commercial debts. With an estimated NPV of debt to exports exceeding the benchmark of 150 percent, Somalia qualifies for debt relief under the HIPC Initiative’s export window.
The authorities therefore seek the support of the Executive Directors in confirming Somalia’s eligibility for assistance under the enhanced HIPC Imitative. The country is in a position to fulfill the conditions for arears clearance required for the Decision Point. In addition to the NPV measure, the country has established the six months performance track record and has completed an interim poverty reduction strategy.
In addition, the country’s key multilateral creditors, World Bank and African Development Bank, have committed to clear Somalia’s arrears by end-March 2020. Further, Paris Club is expected to provide their share of debt relief. Meanwhile, the authorities have also secured a preliminary offer of debt relief from some key non-Paris Club creditors, while efforts continue to reach out to the full set of non-Paris Club bilateral creditors.
Floating Completion Points
The authorities broadly agree with the proposed floating completion point triggers and believe that they are well balanced, structured, and aligned with reforms already underway. They view timely technical assistances from the Fund and other development partners as essential for the successfully implementation of the triggers.
Conclusion
The authorities reaffirm their continued commitment to reforms and meeting the triggers for the floating completion points in a timely manner. They view implementation of the reforms as necessary for emergence from fragility and uplifting the living standards of the population. In this regard, they look forward to continued support from the international community, including the Fund.