Two and a half decades of conflict, concentrated mainly in southern Somalia, destroyed much of the country’s governance structure, economic infrastructure, and institutions. Following the collapse of the Siad Barre government in January 1991, Somalia experienced deep cycles of internal conflict that fragmented the country, undermined legitimate institutions, and created widespread vulnerability.
In 2012, a new federal government emerged in Mogadishu within the framework established by the Provisional Constitution. Following the political transition in 2012 the international community agreed to the Somali Compact with the Federal Government of Somalia (FGS), based on the principles of the New Deal. The Compact, which was agreed to at the Brussels Conference in September 2013, provides an organizing framework (2014-16) for the delivery of assistance to Somalia in line with national priorities and increasingly delivered by Somali institutions.
Somalia’s gross domestic product (GDP) is projected to reach $6.2 billion in 2016, GDP per capita at $450 and a poverty headcount rate of 51.6 percent.Consumption remains the key driver of GDP with investment accounting for 8% of GDP in 2015. The economy is highly dependent on imports, with the share of exports to GDP being 14%. Imports account for more than two thirds of GDP, creating a large trade deficit, mainly financed by remittances and international aid. Remittances, estimated at $1.3 billion, not only provide a buffer to the economy but also are a lifeline to large segments of the population cushioning household economies and creating a buffer against shocks. Poverty is abundant with a half of the population living below the poverty line (51.6%). Remittances help reducing poverty. One in three people receiving remittances is poor (35.4%). Inequality is high driven by the difference in poverty incidence in urban settings (close to 60%in Mogadishu and more than 40% in other urban settings) and rural settings (52.3%) with IDP settlements (71.0%).
Public expenditures have increased significantly since 2012, from $35.1 million to $135.4 million in 2015, driven by year-on-year increases in revenue. The government has shown improvement in domestic revenue collection. Domestic revenue has grown by 36% in from $84.3 million in 2014 to $114.3 million in 2015, mainly driven by an increase in trade taxes. However, total revenue to GDP accounts for 2.8% of GDP.
In 2015, 32% of the donor commitments were realized as a result of many factors, including lower oil prices and other bureaucratic hurdles. Domestic revenue is still insufficient to allow the government to deliver services to citizens. The administrative and security sectors account for more than 85% of total spending while economic and social services sectors account for about 10% of total expenditure. Poor collection capacity, narrow tax base, absence of the necessary legal and regulatory frameworks, and lack of territorial control hinder full revenue mobilization.
Last Updated: Dec 08, 2016