Somalia is continuing to make progress towards reaching the Heavily Indebted Poor Countries (HIPC) Initiative Completion Point in late 2023, following re-engagement with the International Development Association (IDA) and the clearance of arrears to International Financial Institutions. Currently, Somalia is in the HIPC interim period and all HIPC Completion Point legislative reforms have passed through both houses of Parliament and negotiations with creditors are in the process of being concluded. The International Monetary Fund (IMF) also concluded their 5th review of the Extended Credit Facility (ECF) program. On reaching the Completion Point, Somalia will qualify for full and irrevocable debt relief, which could reduce the debt-to-GDP ratio from 41% in 2022 to 6%, meaning that debt is sustainable in a forward-looking sense, contingent on the full delivery of HIPC, Multilateral Debt Relief Initiative, and beyond-HIPC assistance. Somalia must continue maintaining macroeconomic stability, come to an agreement with all creditors, and must implement its ninth National Development Plan (NDP9).
Political relations in the region are experiencing dynamic change, with new opportunities for Somalia to benefit from trade and regional integration. As Somalia moves out of fragility, it needs to gradually transition from relying on humanitarian aid to development approaches.
After five consecutive seasons of poor rains, the country continues to experience severe drought conditions. The number of people suffering from food insecurity could grow from the current 7.1 million to 8.3 million, with pockets of the population at risk of famine conditions by mid-2023 if humanitarian food assistance is not sustained. Grants including social safety net programs (mainly targeted to rural poor/vulnerable households) and remittances are helping to mitigate the humanitarian crisis. In 2022, partners mobilized more than $1.5 billion in relief.
As Somalia continues to rebuild economic governance institutions, it has several opportunities—rapid urbanization, the growing use of digital technologies, planned investments in energy, ports, education, and health—so building resilience to shocks is a priority to support economic growth and job creation. However, severe drought, rising food prices, falling exports, and slowing growth in remittances are preventing the economy from sustaining a modest rebound.
Amid repeated shocks, growth in GDP averaged only 2% from 2013 to 2020. Owing to the multiple crises, GDP contracted by 0.2% in 2020. GDP growth recovered to 2.9% in 2021 but is projected to have fallen to 1.7% in 2022 under the regional drought and worsening global economic conditions. GDP growth is forecast to rebound to 2.8% in 2023 and 3.7% in 2024.
Implementing reforms that can support Somalia in reaching the HIPC Completion Point will be critical for rebuilding human capital, strengthening institutions, and fostering an environment for inclusive, private-sector-led growth.
The publication of the Collection of Policy Notes for the New Somali Government in June 2022, signaled an increase in the World Bank Group’s (WBG) engagement. Drawing on WBG expertise, the policy notes provide sector-specific advice for the government, as well as an opportunity for it to reinvigorate its agenda for reform.
Last Updated: Mar 30, 2023