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 five new Federal Member States are re-drawing Somalia’s new federal map and creating the space for a political development.
Ongoing elections remain delayed due to differences over the implementation of the agreed revised election model for the 2020/21 polls. Although key constitutional questions remain, federalism offers a means to negotiate power and resources, and to manage developmental imbalances between the stable northern regions and the south still emerging from conflict. Somalia’s private sector remains a source of resilience and innovation as political relations in the Horn of Africa and Red Sea regions experience dynamic change, with new opportunities for Somalia to benefit by its proximity to these markets 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 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 is working with remaining creditors to reach similar agreements. Somalia is also 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 HIPC Completion Point triggers aimed at promoting inclusive growth and poverty reduction.
Somalia continues to rebuild economic governance institutions amid challenging circumstances. However, an incomplete political process and vulnerability to climate-related shocks jeopardize the recovery from fragility.
Somalia has several opportunities - rapid urbanization, growing use of digital technologies, planned investments in sectors such as energy, ports, education and health - that 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, locust infestation and floods which caused the economy to contract by 1.5%. An economic rebound is underway, supported by higher credit to the private sector and 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 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: Apr 14, 2022