The African Development Bank has helped improve domestic revenue collection in Somalia through its Economic and Financial Reform Support Program ( EFRSP ). The program enabled the country to increase its domestic revenues form from 1.9% of GDP in 2017 to 6.9% in 2020.
Meanwhile, the program costs the Bank US $ 127.27 million. It was designed to help the Somali state build its capacity for transparent and accountable management of public resources. It also aimed at restoring fiscal stability and the economy through enhanced management of public finances.
As such, these reforms focused on strengthening domestic revenue mobilization, improving budget monitoring and execution. This is in addition to enhancing transparency in public procurement, and increasing financial sector development.
Benefits to the Central Bank of Somalia
Moreover, the measures deployed under this program supported the adoption of the Central Bank of Somalia’s (CBS) strategic plan. They also marked the start of the transition to an updated organizational structure for CBS. Also, they enabled the drafting of new regulatory texts on the fight against money laundering and the financing of terrorism. These are binding on all financial institutions.
Besides, these measures have led to strengthening the capacity and governance of CBS. They, however, allow the CBS to progress in the normalization of correspondent banking relationships with banks operating in the country. The Bank accomplished this through a wider application of the rules of the fight against money laundering and the financing of terrorism.
On the one hand, the measures have improved domestic revenue collection. The program has helped increase the share of non-salary expenditures subject to the control of budgetary commitments. The percentage rose from 74.9% in 2019 to 83.5% in November 2020. However, the target for December 2021 is to reach 90%.
Overall performance of the program
Meanwhile, the African Development Bank report stated that the program is deemed satisfactory. Even though the COVID-19 pandemic has slowed the pace of implementation. The Bank noted that the program achieved its development goal. It also complemented Somalia’s efforts to normalize relations with international financial institutions and the international community. This is in addition to “helping to improve economic sustainability”.
Furthermore, the report indicated that the program played a key role in helping Somalia implement important economic and financial governance reforms after arrears clearance. This “represents the most notable joint achievement under Bank support and other development partners”, the report concludes.
Meanwhile, Somalia reached the decision point of the Heavily Indebted Poor Countries (HIPC) initiative at the end of March 2020. This followed the clearance of its arrears to the African Development Bank, the World Bank, and the International Monetary Fund. Moreover, the African Development Bank has expressed optimism that the initiative’s reforms will lead to a new prioritization of Somalia’s development ambitions.
The program’s objective was linked to the context of Somalia’s priorities as specified in the 8th (NDP8) and 9th (NDP9) National Development Plans. The NDP8 spanned the period 2017-2019 whilst the NDP9 covers 2020-2024. The program aimed at reducing poverty and inequality through inclusive economic growth, job creation, security improvement, law, and order.
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