NAIROBI, November 30, 2023 — Recurrent shocks, including a prolonged 2020/23 drought, disrupted Somalia's growth, devastating crops, livestock, and exports. Many fled their homes in search of food and water. The severe drought, coupled with global commodity price surges, intensified inflation, hampering household consumption. Consequently, GDP growth slowed to 2.4% in 2022 from 3.3% the previous year.
Somalia’s economic outlook is improving as effects of these shocks wane, but it remains subject to significant risks. The World Bank projects GDP growth to pick up to 3.1% in 2023 and gradually reach 3.8% by 2025. These improvements are expected to bring about positive, although very modest per capita income growth. As the reforms for Heavily Indebted Poor Countries (HIPC) completion start to bear fruit, growth prospects are likely to improve further. However, the outlook is subject to significant risks including climatic shocks, security threats, and global economic shocks.
“As Somalia reaches the HIPC Completion Point, it must continue its reform path to achieve inclusive economic growth and prosperity,” said Kristina Svensson, World Bank Country Manager for Somalia. “Investor confidence is anticipated to rise with the achievement of this important milestone, and the government's efforts to create an enabling environment for foreign investment, including integrating Somalia into the global finance system, needs to continue.”
Despite economic challenges, Somalia's public finances strengthened, driven by ongoing reforms supporting stability and recovery. Domestic revenues, surpassing pre-COVID levels since 2022, enabled a shift in expenditure towards social programs and intergovernmental grants, bolstered by increased external funding. Ongoing economic governance reforms position the country favorably to achieve the HIPC Completion Point, a significant developmental milestone.
“Economic reforms and increased public investment in human capital are projected to attract foreign direct investment and encourage private sector activity, gradually boosting domestic productive capacity,” reiterated Stella Ilieva, World Bank Senior Economist. “Over the medium term, peace dividends and unlocked concessional borrowing after debt relief are expected to further enhance output growth.”
Water is the special focus of this issue of the Somalia Economic Update. Access to water is crucial for Somalia's transition from fragility and improving household resilience to shocks. Water plays a central role in human development, urban development, job creation, and long-term economic growth. Balancing food demand and water supply is essential for Somalia's growth.
“Somalia’s waters are a vital ingredient in building resilience, improving prosperity, and developing the economy,” said Chantal Richey, World Bank Senior Water Supply and Sanitation Specialist. “Managing the water that Somalia has, in a well-planned and coordinated way, is also critical for helping the country cope with climate variability, climate change and for smoothening out economic shocks, particularly from floods and droughts.”
The country's economic success will depend on effectively utilizing its green and blue water resources and allocating them to the most valuable social, economic, and environmental purposes. To ensure resilience and prosperity, Somalia needs an integrated economic policy that prioritizes water.
Overall, the eighth edition of the World Bank’s Somalia Economic Update series provides an in-depth analysis of recent economic developments and growth outlook and makes a case for integrating climate change with Somalia’s growth agenda.