A sustained period of political and institutional progress reflects a country transitioning out of fragility and protracted crisis. The 2011 Provisional Constitution, the 2012 establishment of the federal government, and the subsequent formation of four new Federal Member States are re-drawing Somalia’s new federal map and creating the space for a political settlement.
Upcoming elections remain delayed due to gridlock over the implementation of the agreed revised election model for the 2020/21 polls. Although key constitutional questions remain open, federalism offers a new means to negotiate power and resources, and to manage developmental imbalances between the more stable northern regions and those in the south still emerging from conflict. Somalia’s private sector remains a source of resilience and innovation and political relations in the Horn of Africa and Red Sea regions are experiencing dynamic change, with potential new opportunities for Somalia to benefit from its proximity to the Ethiopian market for trade and regional integration.
Heavily-Indebted Poor Countries (HIPC) Decision Point
Somalia reached the Decision Point of the Heavily Indebted Poor Countries (HIPC) initiative on March 25, 2020, restoring the country’s access to regular concessional financing and launching the process toward debt relief. It cleared its arrears to the African Development Bank (AfDB), the International Monetary Fund and the International Development Association, and reduced its external debt to $3.9 billion (78% of the revised 2020 gross domestic product (GDP) from $5.3 billion.
On March 31, 2020, Somalia reached agreement with the Paris Club on terms of debt relief, and it is working with remaining creditors to reach similar agreements. Somalia also resumed servicing its outstanding debt to the AfDB and IDA. To receive irrevocable debt relief, Somalia must maintain sound macroeconomic policies, implement its poverty reduction strategy—the Ninth National Development Plan (NDP9)—for at least one year, and complete a set of policy measures known as Completion Point triggers that are aimed at promoting inclusive growth and poverty reduction.
Somalia is continuing to rebuild economic governance institutions amid challenging circumstances. Continuous reform implementation enabled Somalia to reach the first milestone in obtaining debt relief and fully reengage with the international community in March 2020. However, an incomplete political settlement, vulnerability to shocks (such as climate related disasters, locust’s infestation and floods) are jeopardizing the recovery from fragility.
Somalia also has several opportunities. Rapid urbanization, growing use of digital technologies, planned investments in sectors such as energy, ports, education and health can support economic growth and job creation. Following a prolonged drought, growth was estimated at 2.9% in 2019. A projected growth rate of 3.2% in 2020 was interrupted by a triple crisis of COVID-19 (coronavirus), locust’s infestation and floods which caused the economy to contract by 1.5%. A tenuous economic rebound is underway, supported by higher credit to the private sector and relatively resilient inflows of remittances. With a modest recovery, per capita private consumption is projected to stagnate in 2021. The international poverty rate is projected to remain at 71%; a trend expected to continue in 2022 and 2023. Accelerating the pace of poverty reduction will require policy interventions to raise productivity, create jobs, and expand pro-poor programs.
The government is also committed to institutional reforms and reengagement with the region, including opportunities to rebuild human capital and chart a pathway toward economic resilience and growth.
Last Updated: Mar 18, 2021