Somalia
Currency Reform Assessment Letter for the Central Bank of Somalia

This letter provides IMF staff’s assessment on the readiness of the Central Bank of Somalia (CBS) to issue a new national currency under Phase I which will be limited to exchanging the counterfeit Somali shilling notes currently in circulation with new currency. Over the past two years the IMF has provided the CBS with extensive technical assistance (TA) to support the currency reform project. All preparatory measures agreed on between the authorities and IMF staff have been implemented and IMF staff views that the CBS is ready to introduce the new national currency under Phase I. This assessment letter has been requested by the CBS with the objective to share it with donors to mobilize the needed funding for the currency reform project. It is estimated by IMF staff that this project under Phase I will cost about $41 million.

Abstract

This letter provides IMF staff’s assessment on the readiness of the Central Bank of Somalia (CBS) to issue a new national currency under Phase I which will be limited to exchanging the counterfeit Somali shilling notes currently in circulation with new currency. Over the past two years the IMF has provided the CBS with extensive technical assistance (TA) to support the currency reform project. All preparatory measures agreed on between the authorities and IMF staff have been implemented and IMF staff views that the CBS is ready to introduce the new national currency under Phase I. This assessment letter has been requested by the CBS with the objective to share it with donors to mobilize the needed funding for the currency reform project. It is estimated by IMF staff that this project under Phase I will cost about $41 million.

This letter provides IMF staff’s assessment on the readiness of the Central Bank of Somalia (CBS) to issue a new national currency under Phase I which will be limited to exchanging the counterfeit Somali shilling notes currently in circulation with new currency. Over the past two years the IMF has provided the CBS with extensive technical assistance (TA) to support the currency reform project. All preparatory measures agreed on between the authorities and IMF staff have been implemented and IMF staff views that the CBS is ready to introduce the new national currency under Phase I. This assessment letter has been requested by the CBS with the objective to share it with donors to mobilize the needed funding for the currency reform project. It is estimated by IMF staff that this project under Phase I will cost about $41 million.

Somalia is continuing to achieve important progress in rebuilding its economy, and its development partners are providing significant peacekeeping, institution building, and humanitarian support. Somalia is one of the largest beneficiaries of IMF TA, which is delivered through a multi-donor Trust Fund and closely coordinated with other partners. An important focus of the IMF TA has been on currency reform. Somalia’s relationship with the IMF continues to improve: in June 2017 IMF Management completed the first 12-month staff-monitored program (SMP) with the country and approved a second 12-month SMP covering the period May 2017–April 2018.

The authorities have set currency reform as one of their highest priorities. It is an important component of the reform measures under the SMPs. It will be implemented in two phases. Phase I (see Table 1) involves the exchange of counterfeit Somali shilling notes currently in circulation with fiat Somali shilling banknotes. During this phase, the CBS will only issue new small-denominations (i.e., 1,000; 2,000; 5,000; and 10,000) of Somali shilling banknotes to replace the counterfeits currently in circulation. Beyond this, any injection of new Somali shilling banknotes, including larger denominations, will only take place during phase II. The latter will require significant preparatory work, including strengthening the CBS’s institutional2 capacity and developing independent monetary policy instruments and reserve management guidelines.

The introduction of the new banknotes will mark the first time that the CBS is issuing currency since 1991. It will help the authorities bring an end to the widespread counterfeiting prevailing in the country. All the required legal and operational measures recommended by the IMF related to this project have been implemented (Table 1). Also, IMF staff has assisted the authorities in preparing the budget (Table 2) for the entire Phase I and will continue to provide the authorities with the needed TA and advice during the issuance and launch of the new currency. The authorities will need the support of the donor community to raise the needed funds, $41 million, for this project. The budget will cover the entire operation of Phase I which includes all aspects of the issuance and distribution on the new currency.

Table 1.

Somalia: Critical Actions Completed by the Central Bank of Somalia (CBS) Under the Phase I of the Currency Reform Roadmap

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Table 2.

Currency Reform Cost Summary of the Phase I

(US$ million, unless otherwise indicated)

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This excludes the cost of reserve coverage of new banknotes.

1

For a detailed assessment of recement macroeconomic developments and prospects in Somalia please see the IMF staff report for the 2017 Article IV consultation and first review under the staff-monitored program (IMF Country Report No. /18/55).

2

This will include improvement of governance at the CBS.

Somalia: Currency Reform Assessment Letter for the Central Bank of Somalia
Author: International Monetary Fund