@Abdikani Yasin In Memory of John Randa This edition is dedicated to the late John Randa who was serving as Senior Economist for Somalia and as the lead author, had just completed this report at the time of his passing. A Kenyan national, John joined the World Bank Group in 1998 and became the Senior Economist for Somalia in 2015. John made significant contributions to the Somalia Program. He led the annual flagship publication of the Somalia Economic Update (SEU) series including this eighth edition. He also led the trade analytics and advisory and statistics work as well as co-authored numerous publications. John will be remembered for his kindness, humanity, generosity, and a great sense of humor filled with his hearty laughter that warmed everyone around him. He will be dearly missed as a friend, big brother, and consummate professional. © 2023 The World Bank 1818 H Street NW, Washington DC 20433 Telephone: 202-473-1000; Internet: www.worldbank.org Some rights reserved This work is a product of the staff of The World Bank. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of the Executive Directors of The World Bank or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. Rights and Permissions The material in this work is subject to copyright. Because the World Bank encourages dissemination of its knowledge, this work may be reproduced, in whole or in part, for noncommercial purposes as long as full attribution to this work is given. Attribution—Please cite the work as follows: “World Bank. 2023. Somalia Economic Update, Eighth Edition: Integrating Climate Change with Somalia’s Development: The Case for Water © World Bank.” All queries on rights and licenses, including subsidiary rights, should be addressed to World Bank Publications, The World Bank Group, 1818 H Street NW, Washington, DC 20433, USA; fax: 202-522-2625; e-mail: pubrights@worldbank.org. Photos credits: Cover: Ali Dhangèd, Mohamed A. Bashir, and Abdikani Yasin Inside Part I: UNDP Somalia and FAO Somalia. Inside Part II: Mohamed A. Bashir Data: The cutoff date for the data used in this report was July 2023. TABLE OF CONTENTS Abbreviations ..................................................................................................................................................................................... i Acknowledgements ............................................................................................................................................................................ ii Foreword............................................................................................................................................................................................. iii Horudhac............................................................................................................................................................................................. iv Executive Summary............................................................................................................................................................................. v Dhokumenti Kooban . ......................................................................................................................................................................... xi PART I. Somalia’s Fragile Recovery amid Recurrent Shocks and Political Challenges ...................................................................... 2 1.1 The Global and Regional Context.................................................................................................................................... 2 1.2 Recent Economic Developments in Somalia . ................................................................................................................. 3 1.3 Medium-Term Outlook and Risks: Prospects for Recovery............................................................................................. 24 1.4 Economic Growth Must Accelerate to Reduce Poverty................................................................................................... 29 1.5 Climate Change Expresses Itself Through Water ............................................................................................................ 30 PART II. Integrating Climate Change with Somalia’s Development: The Case for Water.................................................................. 33 2.1 Introduction . .................................................................................................................................................................. 34 2.2 Context: Water and Development in Somalia................................................................................................................. 36 2.3 Food and Water Security................................................................................................................................................. 46 2.4 An Agenda for Change and Wellbeing............................................................................................................................. 50 References........................................................................................................................................................................................... 55 Annex A1: Somalia Rebased GDP Estimates, 2016–2022 ................................................................................................................... 56 LIST OF FIGURES Figure 1.1: Somalia’s economy continues to be buffeted by exogenous shocks............................................................................... 3 Figure 1.2: Food Insecurity is aggravated by recurring climatic shocks............................................................................................ 5 Figure 1.3: Food prices were the largest shock experienced by Somali households........................................................................ 6 .................................................................................. 7 Figure 1.4: Contemporaneous shocks have led to loss of income and assets. Figure 1.5: Coping mechanisms of households during shocks.......................................................................................................... 7 Figure 1.6: Inflation was high in 2022, driven by high food and energy prices................................................................................. 8 Figure 1.7: Fuel prices were at an all-time high in 2022................................................................................................................... 8 Figure 1.8: Local cereal price increased in 2022............................................................................................................................... 9 Figure 1.9: Increasing bank assets and liabilities ............................................................................................................................. 10 Figure 1.10: Commercial banking assets grew in 2022....................................................................................................................... 11 Figure 1.11: Intermediation role of commercial banks is still nascent................................................................................................ 11 Figure 1.12: Drought and global prices affected Somalia’s trade with its partners............................................................................. 13 Figure 1.13: Live animals exports have not recovered since the 2016/17 drought . .......................................................................... 14 Figure 1.14: Growth in remittances slowed in 2022 . ......................................................................................................................... 14 Figure 1.15: FGS tax revenues are too low to finance the FGS wage bill ............................................................................................ 15 Figure 1.16: Domestic revenue performance improving, but still too low to finance increasing expenditures.................................. 17 Figure 1.17: FGS spending is shifting towards social programs and intergovernmental grants.......................................................... 18 ................................................................................................... 19 Figure 1.18: Revenue and expenditure performance across the FMS. Figure 1.19: FGS fiscal challenges to continue in 2023........................................................................................................................... 21 Figure 1.20: The economy is set to recover after severe shocks in 2022 .............................................................................................. 24 Figure 1.21: Poverty headcount and poverty gaps remain high in Somalia .......................................................................................... 29 Figure 2.1: Estimated water balance in Somalia (km3/yr) , 2020......................................................................................................... 39 Figure 2.2: Actual and predicted water consumption, 1961–2061...................................................................................................... 40 Figure 2.3: Population estimates for Somalia...................................................................................................................................... 43 Figure 2.4: Per capita water consumption in Somalia.......................................................................................................................... 47 LIST OF BOXES Box 2.1: Green water and its importance in arid and semi-arid regions......................................................................................... 34 Box 2.2: Assumptions of the four scenarios for virtual water consumption in Figure 2.4............................................................... 49 LIST OF TABLES ............................................................................................................ 12 Table 1.1: Banking sector performance in Somalia, 2020–22. Table 1.2: Imports surged as COVID-19 restrictions eased................................................................................................................. 13 Table 1.3: FGS fiscal operations, 2019–2023 (US$ millions)............................................................................................................... 16 Table 1.4: FGS revenue and expenditure outturn, January to July 2022–23 ..................................................................................... 21 Table 1.5: FGS has achieved almost all HIPC completion point triggers............................................................................................. 22 Table 2.1: Embedded water content of key food and other products ............................................................................................... 47 ABBREVIATIONS AfDB African Development Bank m3 Cubic meter AML/CFT Anti-money laundering and m /ha/year Cubic meter per hectare per year 3 countering the financing of terrorism MCM Million cubic meter CBS Central Bank of Somalia MCM/yr. Million cubic meter per year DMU Debt Management Unit microS/cm Micro siemens per centimetre ECF Extended Credit Facility mm/d Millimetre per day ENSO El Niño Southern Oscillation mm/yr Millimetre per year ET Evapotranspiration MoEWR Ministry of Energy and Water FAO Food and Agriculture Organization Resources FAOSTAT Food and Agriculture Organization MoWD Ministry of Water Development Corporate Statistical Database NDP National Development Plan FCV Fragility, Conflict, and Violence NPS National Payment System FDI Foreign Direct Investment NGO Non-governmental Organization FGS Federal Government of Somalia NRA National Risk Assessment FIES Food Insecurity Experience Scale NWRS National Water Resource FMS Federal Member State Development Strategy GDP Gross Domestic Product OAG Office of the Auditor General GSS Galmudug State of Somalia ODA Official Development Assistance ha Hectare PFM Public Financial Management HIPC Heavily Indebted Poor Country PPP Public-private Partnership HSS Hirshabelle State of Somalia PSS Puntland State of Somalia IBAN International Bank Account Number SIHBS Somalia Integrated Household Budget Survey IDP Internally Displaced Person SWALIM Somalia Water and Land Information IMF International Monetary Fund Management (FAO) INGO International non-governmental SWC Soil and Water Conservation organization SWS South West State of Somalia JSS Jubaland State of Somalia UN United Nations km Kilometre UNICEF United Nations Children’s Fund km2 Square kilometre UNIDO United Nations Industrial KYC Know your customer Development Organization l/cap/day Litre per capita per day WASH Water, Sanitation, and Hygiene l/s/km2 Litre per second per square kilometre WB World Bank LCD Litre per capita per day WDA Somali Water Development Agency ICT Information and Communication WHO World Health Organization Technologies LIC Low-income Country November 2 0 2 3 | Edition No. 8 i ACKNOWLEDGEMENTS This eighth edition of the Somalia Economic Update was prepared by a World Bank team led by John Randa and Chantal Richey. The core team consisted of Catherine Ngumbau, Dr. Klas Sandström, Dr. Kerstin Danert, Philip Schuler, Stella Ilieva, and William Rex. Dominick de Waal, Pieter Waalewijn, Barbara Balaj, Eric Maina, Angela Mwangi, Robert Waiharo, Fatuma Hirsi, and Vera Rosauer also made contributions. The report benefitted from the comments of peer reviewers Richard Walker and Marcus J. Wishart. The team received overall guidance from Abha Prasad (Practice Manager, Macroeconomics, Trade and Investment); Francis Ghesquiere (Practice Manager, Water Global Practice); Marek Hanusch (Lead Economist and Program Leader, Equitable Growth, Finance and institutions); and Kristina Svensson (Country Manager, Somalia). ii S om a l i a Eco n om i c Update FOREWORD Somalia has remained on a strong economic reform path despite the various global and exogenous shocks that have continued to buffet the economy. Recurrent climate-related shocks, such as cycles of droughts, floods, locusts’ infestation, higher international commodity prices, as well as increased insecurity and conflict, have interrupted the country’s growth trajectory. However, this has not deterred the country’s commitment to continue advancing reforms to strengthen key economic institutions and promote macroeconomic stability and recovery. As a result, Somalia has continued to make progress toward meeting the conditions for achieving the HIPC Completion Point in December 2023. Within the framework of resilience, 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. The increased frequency and magnitude of shocks in Somalia directly affect the poor and contribute to displacement, food insecurity, and conflict. Somalia’s waters are a vital ingredient in building resilience, improving prosperity, and developing the economy. Overall, the Economic Update series aims to contribute to policymaking process and stimulate national dialogue on topical issues related to economic recovery and development. To enable Somalia continue transitioning from fragility and to improve household resilience to shocks, access to water is important. Water is the central enabler of human development, urban development, job creation, and a driver of long-term economic growth. Underpinning resilience and prosperity, Somalia needs an integrated economic policy that places water at its center. Economic success will be deeply influenced by the extent to which the country is able to fully harness its available green and blue water resources, including allocating them to the highest value social, economic, and environmental uses. Better water management is also critical for helping the country cope with climate variability and climate change and for smoothening out economic shocks, particularly from floods and droughts. Lastly, as Somalia reaches the HIPC Completion Point, it is important that the country continues its reform path to achieve inclusive economic growth and prosperity to avoid sinking into future debt in the medium-term and post-HIPC era. The reforms needed are numerous and cut across many sectors which the World Bank has discussed with the authorities. This report, therefore, only highlights macroeconomic policies and reforms that promote inclusive growth and institutional building including enhancing fiscal space for development priorities while strengthening expenditure controls; strengthening financial integrity; integrating Somalia into the global financial system; and improving debt management. Kristina Svensson Country Manager, World Bank Somalia November 2 0 2 3 | Edition No. 8 iii HORUDHAC Soomaaliya weli waxay ku sii jirtaa dhabada dib u habbaynta dhaqaalaha xoogan ka sakow dhacdooyinka xun ee kala duwan caalami ahaan iyo kuwa dibada ah ee ku sii coda inay waxyeelayso dhaqaalaha. Dhibta cimilada la xidhiidha ee soo noqnoqta, sida waraagyada abaaraha, daadadka, ayaxa meelo soo gala, qiimayaasha alaabta caalamiga ah ee sare, siiba amni darada kordhaysa iyo khilaafka, waxay fara gelisay dhabada koboca dhaqaalaha. Si kastaba ha ahaatee, tan dib looma dhigo, ballan qaadka wadanka in la sii wado dib u habaynta sare u kacaysa si loo xoojiyo wakaaladaha dhaqaalaha muhiimka ah iyo sare u qaadka degenaanta iyo soo kabashada dhaqaalaha dhammayska tiran. Iyaddoo ay tahay natiijada, Somaaliya waxa uu sii waday inuu horumar ka sameeyo dhanka buuxinta xaaladaha ka guul gaadhida HIPC Dhammaystirka Qodobka gudaha Diisaambar 2023. Gudaha haykalka adkaysiga, daabcaada sideedeed ee Baanka Adduunka Dhaqaalaha Soomaaliya taxanahu waxa uu bixiyaa faaqidaad qoto dheer ee horumarka dhaqaalaha dhawaa iyo koboca muuqaalka oo ka sameeya kiis isku dhafida isbeddelka cimilada ee leh ajandaha koboca Soomaaliya. Inta jeer ee korodhka iyo sida ay u wayntahay jugtu, gudaha Soomaaliya si toos ah waxay u saamaysaa dadka saboolka ah oo waxay ka qayb qaadataa barakaca, cunto yaraanta iyo khilaafyada. Biyaha Soomaaliya waa waxyaabaha ugu muhiimsan ee dhisida adkaysiga, horumarinta badhaadhaha, iyo horumarka dhaqaalaha. Guud ahaan, taxanaha La socodka arrimaha Dhaqaalahu waxay u jeedadiisu tahay inay wax lagu biiriyo nidaamka xeer dejinta oo la dhiiri geliyo wada hadalka qaranka ee ku saabsan arrimaha dhacdooyinka jira la xidhiidha ee soo kabashada dhaqaale iyo horumarka. SI awood loo siiyo Soomaaliya si ay u sii wado ka wareegida jilicsanaanta oo loo horumariyo u adkaysiga qoyska ee waxyaabaha naxdinta leh, una helaan biyo waa muhiim. Biyaha waxaay suurageliyaha muhiimka ah ee horumarka aadamaha, horumarka magaalada, shaqo abuurka, iyo wadaha koboca dhaqaalaha xiliga dheer. Kordhinta awooda adkaysiga iyo barwaaqada, Soomaaliya waxay u baahan tahay xeerka isku dhafka ah ee dhaqaalaha ee biyaha keena badhtankeeda. Dhaqaalaha guusha dhaqaalaha Soomaaliya si qoto dheer ayay u saamayn doonta xadka wadanku uu awoodo inay si buuxda u maamusho khayraadkeeda biyaha la heli karo ee cagaarka iyo buluuga, ay ku jiraan u qoondaynta iyaga qiimaha u sareeye ee isticmaalka bulsho, dhaqaale, iyo deegaan. Maaraynta Wanaagsan ee biyaha sidoo kale waxay muhiim u tahay caawinta wadanku inuu la tacaalo kala duwanaanshaha cimilada iyo isbeddelka cimilada ee debcinta dhibaatooyinka dhaqaalaha, gaar ahaan kuwa ka yimaada daadadka iyo abaaraha. U dambayn, marka Soomaaliya gaadho Qodobka Dhammaystirka HICP, waa muhiim in wadanku sii wado dhabadeeda dib u habbaynta si looga guul gaadho koboca dhaqaalaha iyo barwaaqada si la isaga ilaaliyo daynka mustaqbalka gudaha xiliga dhexe iyo ka dib cahdiga HICP. Dib u habbaynta loo baahan yahay waa mid fara badan oo waxay soo dhex martaa qaybo badan kaas oo Baanka Adduunka waxay kala hadleen masuulada. Warbixinta, sidaas awgeed, keliya waxay muujinaysaa xeerarka dhaqaalaha dhammaystiran iyo dib u habbaynta sare u qaado koboca loo dhan yahay iyo dhismaha wakaalada ay ku jiraan sare u qaadka meesha maaliyada ahmiyadaha horumarka marka la xoojinayo maamulka kharash garaynta; xoojinta wada jirka dhaqaale; ku darida Soomaaliya nidaamyada maaliyada caalamiga ah; iyo horumarinta maaraynta daynta. Kristina Svensson Maamulaha Wadanka, Baanka Adduunka Soomaliya iv S om a l i a Eco n om i c Update EXECUTIVE SUMMARY Somalia’s economic growth slowed significantly disease outbreaks, and recently the impact in 2022 as surging inflation and weaker external of the COVID-19 crisis. However, increases in demand weighed on global activity. Tighter global private sector credit, construction activity, and financial conditions and a pronounced rise in intermediate imports have helped support global inflation held back private consumption and economic activity and prevented the economy investment. At the same time, the war in Ukraine from contracting further. dampened global economic activity and export demand. As a result, the global economy grew at Private consumption spending drove GDP growth 3.1 percent in 2022 from 5.9 percent the previous in 2022, as in past years. Growth in private year. The slowdown reflected synchronous policy consumption was supported by remittances and tightening aimed at containing very high inflation, official grants. Despite high inflation, private worsening financial conditions, and continued consumption increased, reflecting pent-up disruptions from the Russian Federation’s invasion demand associated with the lifting of COVID-19 of Ukraine. Somalia is vulnerable pandemic restrictions. However, to such shocks because of the rising food and fuel prices eroded economy’s reliance on external trade the purchasing power of Somalis, and financing, limited economic Drought dampened thus hampering higher growth. The diversification, and susceptibility to economic activity in current account deficit worsened natural disasters. 2022, wiping out the to 16.8 percent of GDP in 2022 agricultural sector from 12.5 percent the previous After a moderate rebound in and intensifying a year. The drought depressed 2021, Somalia’s economy faced humanitarian crisis exports of live animals, while further turbulence in 2022. The imports surged owing to both high World Bank estimates gross domestic product global commodity prices and increased domestic (GDP) growth to have slowed to 1.7 percent in demand due to the drought. 2022, from 2.9 percent in the previous year.1 The slowdown in economic activity in 2022 was Drought dampened economic activity in 2022, a result of prolonged drought, which persisted wiping out the agricultural sector and intensifying for five consecutive seasons of diminished and a humanitarian crisis. Relentless drought and high irregular rains and higher commodity prices. food prices weakened household livelihoods and These factors were a drag on growth and led to purchasing power. The drought was the longest— a pause in 2021’s modest economic recovery it started in late 2020 and continued up to early from the COVID-19 pandemic. The cost of living 2023—and has been the most severe in recent was also elevated because of higher global food history. Indeed, it surpassed the 2010/2011 and and energy prices, thus tempering the growth 2016/2017 droughts in both duration and severity. of consumption. The economy continues to be The debilitating drought left Somalia on the verge weakened by a series of exogenous and persistent of a humanitarian catastrophe, destroying crops shocks, including decades of conflict, recurrent and livestock, and forcing huge numbers of people climate shocks, desert locust infestation, animal to leave their homes in search of food and water. Somalia National Bureau of Statistics released new GDP series in June 2023. This new series shows the economy grew by 2.4 percent in 2024. The new GDP series is 1 based on data from the 2022 Somalia Integrated Household Budget Survey (SIHBS). Data collected through the SIHBS was used to improve GDP estimates by revising household consumption. The GDP was rebased to 2022 prices and the series was backdated to 2016. Comparing the new GDP series (2022 base year) to the previous series (2017 base year) shows that: the new nominal GDP level is 37 percent higher on average between 2016–2022, and new real GDP level is 66 percent higher on average between 2016–2022 (see Annex A1 for detailed analysis of the new rebased series). November 2 0 2 3 | Edition No. 8 v Executive Summary Drought also decimated the performance of the trade finance and for relatively large loans whose agricultural sector as one-third of all livestock in share in the total portfolio of banks increased the worst-affected areas had died since mid-2021. during the pandemic. As a result, households In addition, crop production remained extremely are prohibited from borrowing from commercial poor. This intensified a humanitarian crisis, with banks, despite excess liquidity due to increased nearly half of the population being food insecure, default risk perceptions since the COVID-19 crisis. and 1.3 million people being displaced. The external sector was weighed down by Inflationary pressures intensified in 2022. drought and global developments. Even though Consumer prices accelerated in the first half of the current account deficit remained invariant 2022 due to both domestic and external factors. at 16.8 percent of GDP in 2022 compared to the Commodity prices, which started to rise in mid- previous year, high global commodity prices and 2021, were driven by challenges in global supply drought necessitated increased food importation, chains and continued to increase due to the thus leading to a higher oil import bill. The trade severe drought conditions. Drought reduced the balance deteriorated as export earnings from capacity of Somalis to grow and buy livestock were insufficient to their own food, thereby increasing offset the significant increase in food insecurity. At the same FGS fiscal space import bills. The trade deficit was time, Russia’s invasion of Ukraine remains limited to financed by remittances and official disrupted the global food markets respond to shocks or grants. Because of the country’s and energy prices. Overall food invest in public weak production base and tough inflation remained significantly high service delivery investment climate, the external and stickier as compared to previous sector will remain vulnerable, periods. Indeed, overall inflation peaked in July partly because of deteriorating terms of trade. 2022, and started declining in the second half of The growth of remittance inflows was sluggish the year as international energy prices started in 2022, reflecting global economic conditions as to ease. However, food price inflation remained the Somalia diaspora faced tight global financial above 10 percent in some regions especially conditions and high inflation rates where they live. Somaliland, reflecting supply disruptions caused by the drought. The Federal Government of Somalia (FGS) maintained its pre-COVID fiscal performance, but The financial sector continued to grow with fiscal space to respond to shocks or invest in public increases in commercial bank assets and goods remains limited. Public finances improved liabilities. The public’s confidence in the financial markedly in 2022, after fiscal pressures in 2021 system increased, as signaled by domestic assets caused by the political stalemate. Federal revenue of the banking sector having more than tripled collection exceeded pre-COVID levels, surpassing in the last five years to 15.4 percent of GDP in the annual target by 5 percent in 2022. Total donor 2022. Credit to the private sector increased by 25 grants more than tripled as compared to 2021, percent, despite the economic slowdown in 2022. owing to the resumption of budget support and This slowdown was driven by four subsectors of increased project grants in response to the severe construction loans, trade financing, real estate, drought. Nonetheless, the fiscal situation remains and investments in partnerships and joint challenging, offering limited opportunities to ventures. However, the banks still maintain their either respond to shocks or invest in human risk-averse stance, only lending on short-term development and physical infrastructure. Although vi S om a l i a Eco n om i c Update Executive Summary domestic revenue mobilization has improved increases. Declining global commodity prices will over time, it remains low and insufficient to meet have a stronger positive effect on the economy recurrent expenditure needs. Domestic revenues by boosting economic activity. It is assumed that could finance only around one-third of the total average rains will lead to the gradual recovery of expenditures in 2022, leaving a large share of agricultural production with a modest recovery of the budget to be financed by external grants, as exports, particularly in the second half of 2023. well as ad hoc rationalization of expenditures in Continued humanitarian and social protection line with available resources. Meanwhile, public support will cushion households against the expenditures continue to rise, dominated by lingering drought effects. It also assumes investor personnel costs. However, social spending is confidence is buoyed by the new government’s largely financed by grants. FGS plans to stabilize public finances, expenditures are dominated by the and the country’s anticipation of wage bill and the use of goods and reaching the Heavily Indebted services as the country continues to A modest recovery Poor Country (HIPC) Completion establish basic functions needed for is expected in the Point by the end of 2023, hence stabilization and state-building. The medium term as increasing the risk appetite for size of the wage bill could not be climatic conditions investors. Economic reforms and financed by tax revenues. improve, global increased public investment should commodity prices attract foreign direct investment Medium-Term Outlook Points continue to ease, (FDI) and encourage increased Toward Recovery and investor broad-based private sector activity, The World Bank projects that the confidence increases which will gradually boost the low economy will record a modest domestic productive capacity. Over growth of 2.8 percent in 2023. As this fall short of the medium term, peace dividends and unlocked Somalia’s estimated population growth rate of 2.9 concessional borrowing after debt relief will boost percent, it effectively means that per capita GDP output growth. will contract by 0.1 percent in 2023. The economy is projected to pick up over the medium term as Risks to the Outlook are Tilted to the Downside economic activities gain momentum, with growth The medium-term outlook remains uncertain expected to increase gradually to 3.7 percent and will continue to be subject to risks from and 3.9 percent in 2024 and 2025, respectively. global developments, climate-related shocks, The projected growth in 2023 has been revised and security threats. Risks to the outlook remain downward by 0.8 percentage point as compared tilted to the downside because of high cost-of- to the 2022 Somalia Economic Update (World living increases and drought. Pressures in global Bank 2022) forecast. However, the recovery is commodity markets could lead to increased still expected to be tempered by the legacy of price volatility. Climate change is exacerbating past shocks, including the drought, disruption exposures to weather-related shocks, as the of grain supplies from Ukraine, and the global country is reliant on rainfall to support the pandemic. These shocks have worsened poverty growth of output and exports. An escalation and triggered the cost-of-living surges. in violence or adverse weather events could substantially worsen ongoing humanitarian The baseline scenario assumes a modest recovery crises and dampen growth. These risks can as climatic conditions improve, global commodity impede economic activity and reverse the prices continue to ease, and investor confidence growth recovery in the baseline scenario. November 2 0 2 3 | Edition No. 8 vii Executive Summary Given the volatility of Somalia’s economy and Somalia in the global financial system; and the high risks to growth, this Economic Update improving debt management. considers alternative scenarios for the growth • To enhance fiscal space for development outlook. In the downside scenario, the economy is priorities, the government needs to raise projected to grow at 2.1 percent in 2023, increasing more revenue and strengthen expenditure to only 2.9 percent in 2024. This projection reflects: controls. The Somali authorities should (i) poor climatic conditions with drought or floods; maintain the commitment to avoid running a (ii) agricultural production continuing to decline as budget deficit and to make timely payments food insecurity worsens, leading to increased food supported by the fiscal buffer. The Federal imports to cushion the vulnerable population; (iii) Government of Somalia (FGS) and Federal poor export performance due to the drought; (iv) a Member States (FMS’) should continue global recession caused by high interest rates; and/ efforts to improve tax policy focusing on the or (v) geopolitically driven fragmentation of the harmonization of fiscal regimes for customs global trade system. In the upside and inland revenues which can scenario, growth will be more also advance the federal agenda. robust, at 3.3 percent in 2023 and Strengthening controls over the 4.2 percent in 2024. This scenario As Somalia reaches the wage bill should be a priority, assumes: improved weather HIPC Completion Point, particularly regarding ad hoc conditions leading to the recovery it must continue its personnel costs and allowances. of agricultural production and a reform path to achieve Since wage bill expenditures continued reversal of the drought inclusive economic account for more than half of effects; the conflict in Ukraine being growth and prosperity public expenditures, improving resolved swiftly; and the global controls is critical for enhancing tightening not leading to a global fiscal sustainability. Upon reaching the recession. Under such a scenario, growth will be HIPC Completion Point, there may be driven by higher private and public consumption, opportunities to borrow to finance new higher domestic and foreign investment post- investments in human capital and physical HIPC Completion Point in 2023, and increased net infrastructure. The FGS can take steps now exports as the current account improves. to develop an adequate legal framework to Policy Priorities for Somalia in the Post-HIPC support borrowing and strengthen capacity Transition to manage fiscal risks, particularly if the As Somalia reaches the HIPC Completion Point, federal and state governments enter public- it is important that it continues its reform path private partnerships and new concessions to achieve an inclusive economic growth and arrangements. prosperity to avoid sinking into future debt in • To increase access to finance and integrate the medium term and post HIPC era. While the the financial system to global finance reforms needed are numerous and across many system. To increase access to finance, the sectors, this report only highlights macroeconomic government and Central Bank of Somalia policies and reforms that promote inclusive (CBS) could take tangible measures to growth and institutional building. These include deepen financial inclusion and enhance the enhancing fiscal space for development priorities stability of the financial sector. Stepping up while strengthening expenditure controls; supervision of MTBs by the CBS as well as strengthening financial integrity; integrating enacting the Financial Institutions Law and viii S om a l i a Eco n om i c Update Executive Summary National Payment Systems Law can support Management Unit (DMU), and build capacity the stability of the financial sector and bring for managing fiscal risks, including from all payment systems under one regulation. contingent liabilities. Primary debt legislation In addition, reducing the challenges faced should specify the purpose of borrowing, by Somali entrepreneurs – including the use of guarantees and on-lending, and those owned and managed by women –in the need for parliamentary approval of accessing finance involves increasing the all domestic and external borrowing, as capacity of financial institutions to mitigate well as the issuance of guarantees. These risk perceptions and developing credit and improvements to primary legislation can collateral registries could help to increase help to provide the enabling framework for access to financial products. To integrate a time when Somalia can again borrow. with the global financial system, financial integrity will need to be improved. Enacting Integrating Climate Change with Somalia’s Growth the Digital Identification Bill would provide Agenda: The Case for Water the first step towards implementing a The increased frequency and magnitude of digital identification (ID) which could help shocks in Somalia directly affects the poor and to address know-your customer and due contributes to displacement, food insecurity and diligence concerns thereby supporting the conflict. Somalia’s waters are a vital ingredient establishment of correspondent banking to building resilience, improving prosperity, and relationships. Somalia’s developing the economy. It is well progress in strengthening understood that water—including the anti-money laundering its variability and scarcity—are / combatting of financing The increased closely linked to economic output, against terrorism (AML/CFT) frequency and international trade, human capital agenda will be assessed in magnitude of shocks formation, poverty, and economic 2024. Preparing a national in Somalia directly shocks. Balancing the demands for risk assessment will help affects the poor food and the supply of water are and contributes to Somalia get ready for a mutual also central to Somalia’s growth displacement, food evaluation, which is led by the agenda. Without major changes insecurity, and conflict Middle East and North Africa in society, policy and politics, the Financial Action Task Force (MENA-FATF). current downward trend in food availability is • The FGS needs to improve its debt likely to continue, thereby dampening economic management framework. Risks to debt growth and worsening levels of poverty. Without sustainability will persist even after Somalia these major changes, recurrent food insecurity, reaches the HIPC Completion Point and and extremely difficult conditions will be the norm receives debt relief. The country needs to for many in the coming decades. take conscious steps to avoid falling back into an unsustainable debt position when Somalia’s climate ranges from hyper-arid, to it regains access to development finance. arid, and semi-arid tropical; as such, it is linked In addition to maintaining a prudent fiscal to a high variability in rainfall, as well as surface stance, it is critically important to strength and groundwater stocks and flows. More than the legal framework for debt management, half of the country’s surface water originates institutionalize the functions of the Debt from beyond its national boundaries, primarily November 2 0 2 3 | Edition No. 8 ix Executive Summary in Ethiopia. Droughts and flooding are common. the water it takes to grow food. Looking into the Provided that blue water (from aquifers, sub- future, and in a business-as-usual scenario, by surface storage, rivers, and reservoirs) is allocated 2050, the available water resources per capita in to the most productive needs and managed Somalia for consumption may only be 365m3/ efficiently, Somalia should have enough for person/year. Without significant virtual water Water, Sanitation and Hygiene (WASH), livestock imports, such low consumption rates would be watering services, as well as the broader needs associated with an extremely low food intake. If of its economy well into the future. In contrast, Somalia relied only on its internally renewable food production requires very large quantities of water resources without importing food, and its water. Most of this is provided by green water, associated virtual water, the country would be which is the water retained in soil after rainfall prone to severe food insecurity. Such a future and subsequently transpired by plants—whether must not be allowed to happen. grasses (consumed by livestock), or crops (consumed by people and livestock). However, In Somalia, water is not just a sector concern irrigation requires large quantities of blue water but a key enabler of and constraint for economic to produce food or other crops. growth. In short, Somalia’s economic success will be deeply influenced by the extent to which Somalia’s population was the country is able to fully harness estimated to be around 17 million its available green and blue water in 2023 (UNDESA 2019), but it could Somalia’s economic resources, including allocating grow by about 550,000 per year success will be deeply them to the highest value social, and reach 35 million by 2050. This influenced by the economic, and environmental growing population requires more extent to which uses. Managing water better is also food and water, both of which are the country can fully critical for helping the country cope currently consumed at extremely harness its available with climate variability and climate low rates, thus contributing to green and blue change and for smoothening out high levels of poverty. Since 1975, water resources economic shocks, particularly from there has been a decline in the per floods and droughts. However, the person food consumption in Somalia. reverse is also true, as decisions about agriculture, land use and urban development, and economic Food importation is important in Somalia policy all have significant implications for the and will remain so in the future. However, sustainability and resilience of Somalia’s water these imports need to be secured and paid for. resources. Water insecurity, including exposure to Currently, remittances from the Somalia diaspora, floods and droughts, is amplified by environmental international aid and export earnings pay for degradation, deforestation, and climate change. imported food. The first two are potentially unreliable sources of support. In the future, Moving toward a more circular economy will Somalia needs to improve trade, agricultural increase the long-term resilience of Somalia’s productivity (crop and livestock) and raise export water resources and economy. Many countries earnings to feed the nation. around the world are looking into the re-use or recycling of scarce water resources for different Somalia’s water footprint today, at approximately purposes, including agriculture and the urban 650m3/person/year, is low. The footprint of this water supply. One re-use challenge facing consumption is almost entirely represented by many countries is that they are already heavily x S om a l i a Eco n om i c Update Executive Summary invested in more traditional water technologies Recent years have seen a marked improvement in and infrastructure, thus making transition costs water governance, and there has been progress in prohibitive. Somalia’s less developed infrastructuredeveloping the institutional frameworks for the and service delivery models may offer some sector. A National Water Resources Strategy was benefits here, as they involve less investment in published in 2021, complemented by a Roadmap 20th century technologies. to Implementation. The Roadmap identifies opportunities to use water for socioeconomic Somalia already provides good examples of development and highlights how equitable dealing with water scarcity and variability. Over access to water can help reduce conflict. In the the centuries, its mobile pastoral systems have first half of 2023, the Water Sector Coordination adapted to climate variability by moving herds to Facility and a suite of technical working groups harness variable rainfall in time and were institutionalized within the space. However, they increasingly Ministry of Energy and Water face challenges, including problems Resources. These governance in easily accessing pasture for Underpinning resilience improvements are an important grazing, conflict, and shortages of and prosperity, step in a long journey to improve a water for livestock on migratory Somalia needs an sector that has been characterized routes. These problems need to be integrated economic by fragmentation, lacking clear addressed to improve agricultural policy that places water demarcation of responsibilities productivity, both for local markets at its center between the national, state, and exports. district, and municipal authorities. The provision of safe and reliable drinking For Somalia to continue to transition from water and access to suitable sanitation for fragility and to improve household resilience to Somalia’s growing urban areas needs deeper shocks, access to water is important. Water is the understanding. The rural water sector is well central enabler of human development, urban understood and supported, and existing projects development, job creation, and a driver of long- are largely scalable without much modification. term economic growth. Underpinning resilience In the short term, it is important to understand and prosperity, Somalia needs an integrated urban water supply and sanitation, analytical economic policy that places water at its center work should focus on understanding water encompassing recommendations that relate to five and sanitation service delivery to households opportunities for change and innovation, including: and firms in urban areas, unpacking the roles • Ensure coordination and deliver a whole-of- of emerging water utilities, and determining society water dialogue. appropriate governance mechanisms. This • Optimize the use of both blue and green will help provide services for rapidly growing water to grow the national economy. urbanization and will contribute to bridging • Boost export revenues, and convert the gap between rural and urban economies. Somalia’s livestock sector into a world-class, Given the links between the education of girls, high-quality animal and meat export market. the availability of water and sanitation, as well • Enter a circular economy and ecology as menstrual hygiene management options in that builds on resilience, innovation, and schools and reducing population growth, school integrated systems. WASH is also vital to Somalia’s transformation. • Establish robust, inclusive, and transparent governance systems for water management. November 2 0 2 3 | Edition No. 8 xi DHOKUMENTI KOOBAN Koboca dhaqaalaha ee Soomaaliya si wayn ayuu u koboca isticmaalka. Dhaqaalahu waxaa sii itaal yaraaday sanadkii 2022 iyaddoo sicir bararka sare daraynaya taxanaha sababto dibada ka yimid u kacaya iyo dalabka dibada ee daciifka ah uu ka iyo saamaynaha xun ee dhaqaale. ay ku jiraan miisaan batay hawsha caalamiga ah. Xaaladaha tobanaan sano oo khilaad ah, dhacdooyinka xun ee maaliyada caalamiga ah ee giijisan iyo lagu cimilada oo soo noqnoqda, ayaxa oo duulaan ah, dhawaaqay sare ukaca sicir bararka caalamiga ee dilaaca cudurada xoolaha, iyo dhawaan saamaynta dib u dhigay isticmaalka gaarka ah iyo maalgelinta. dhibta COVID-19. Si kastaba ha ahaatee, korodhka Isku wakhti, dagaalka Yuukraynwaxa uu waxa uu daynta qaybta gaarka ah, hawsha dhismaha, iyo yareeya firfircoonidaa dhaqaalaha adduunka iyo soo dejinta dhexe ayaa caawisa taageerida hawsha dalabkii dhoofinta. Natiijo ahaan, dhaqaalaha dhaqaalaha oo ka hortagtay dhaqaalahu inuu isku adduunku waxa uu kordhay 3.1 boqolkiiba soo ururo in dheeraad ah. sanadkii 2022 laga bilaabo 5.9 boqolkiiba sanadkii hore. Hoos u dhacu waxa uu muujiyay xeerka isku Kharash garaynta isticmaalka gaarka ah waxay marka ah ee adkaynta loola jeedo xakamaynta kobcisay GDP sanadkii 2022, sida sanadihii hore. sicir bararka aadka u sareeya, xaaladaha Koboca isticmaalka gaarka ah waxaa taageeray maaliyada ka sii daraya, iyo burburinta sii socota xawaaladaha iyo deeqaha rasmiga ah. Ka sakow ee ka timid farogelinta Federaalka Ruushka ee sicir bararka sare, isticmaalka gaarka ah ayaa Yuukrayn. Soomaaliya waxay u nugushahay kordhay, iyadoo muujinaysa korodhka sare ee dhacdooyinkan xun sababtoo ah ku tiirsanaanta dalabka la xidhiidha iyaddoo la qaaday xayiraada dhaqaale ee ganacsiga dibada iyo maalgelinta, safmarka COVID-19. Si kastaba ha ahaaree, sare kala duwanaanshaha dhaqaale ee xadidan, iyo u u kaca qiimayaasha cuntadda iyo shidaalka waxa nuglaanshaha masiibooyinka dabiiciga ah. uu burburiyay awooda wax iibsiga Soomaalida, sidaasna ku beddelay kobocii sare. Dhinaanshaha Ka dib korodhka dhexdhexaadka sanadkii 2021, kootada ee hadda waxay sii xumaaray ilaa 16.8 Soomaaliya dhaqaalaheedu waxa uu la kulmay boqoliiba GDP gudaha 2022 laga bilaabo 12.5 dhibaatooyin dheeraad ah sanadkii 2022. Baanka boqolkiiba sanadkii hore. Abaartu waxay sii Adduunku waxa uu ku qiyaasay wadarta alaabta daciifisay dhoofinta xoolaha nool, marka soo gudaha wadanka (GDP) koboceedu inuu hoos u dejintu ay sare u kacday sababtoo ah labbadaba dhacay ilaa 1.7 boqolkiiba sanadkii 2022, laga qiimayaasha sare ee alaabta caalamiga ah iyo bilaabo 2.9 boqolkiiba sanadkii hore.1 Hoos u dalabka gudaha wadanka oo kordhay sababtoo ah dhaca socodka dhaqaalaha sanadkii 2022 waxaa abaarta. keenay abaarta sii daba dheeraatay, oo sii socotay shan xili oo isku xiga ee roobka yaraaday oo aan Abaarto waxay daciifsay hawsha dhaqaalaha caadiga ahayn iyo qiimaha alaabta oo sare u kacay. sanadkii 2022, iyaddoo baabiisay qabta beeraha Asbaabahan waxay ka dhigeen koboca mid jiitama oo sii adkaysay dhibta aadamaha. Abaar qalafsan oo waxay keentay joogsiga 2021 soo kabashadii iyo qiimayaasha sare ee cuntadda ayaa daciifiyay dhaqaale caadiga ah ee safmarka COVID-19. quudka qoysaska iyo awooda wax soo iibsiga. Kharashka nolosho sidoo kale sare ayuu u kacay Abaartu waxay ahayd tii ugu dheerayd—waxay sababtoo ah cuntadda caalimga ah ee saraysa iyo bilaabantay 2020 oo waxay sii socotay ilaa wakhti qiimayaasha tamarta, sidaasna ay ku beddeshay hore oo 2023—oo waxay ahayd midii ugu darnayd Somalia National Bureau of Statistics released new GDP series in June 2023. This new series shows the economy grew by 2.4 percent in 2024. The new GDP series is 1 based on data from the 2022 Somalia Integrated Household Budget Survey (SIHBS). Data collected through the SIHBS was used to improve GDP estimates by revising household consumption. The GDP was rebased to 2022 prices and the series was backdated to 2016. Comparing the new GDP series (2022 base year) to the previous series (2017 base year) shows that: the new nominal GDP level is 37 percent higher on average between 2016–2022, and new real GDP level is 66 percent higher on average between 2016–2022 (see Annex A1 for detailed analysis of the new rebased series). xii S om a l i a Eco n om i c Update Dhokumenti Kooban gudaha taariikhdii dhawayd. Dhab ahaan, waxay Qaybta maaliyada way sii kobocday korodhka dhaaftay 2010/2011 iyo 2016/2017 abaarihii gudaha hantida iyo daynka bangiga ganacsiga. labbada mudda iyo darnaanta. Abaartii wax Kalsoonida dad waynaha gudaha nidaamka baabiinaysa waxay Soomaaliya kaga tagtay cidhifka maaliyada la kordhiyay, sida ay ishaartay hantida masiibada aadami, iyaddoo baabiisay dalaga iyo wadana ee qaybta isticmaalka baanka oo haysa xoolaha nool, oo ku khasabtay tiro badan oo dad wax ka badan inay saddex jibaarantay gudaha ah inay ka tagaan guryahooda iyagoo raadinaya shantii sanadood ee u dambeeyay 15.4 boqolkiiba cunto iyo biyo. Abaarta sidoo kale waxay baabiisay GPD gudaha 2022. Daynta qaybta gaarka ah oo qaybta wax soo saarka beeraha laga bilaabo saddex korodhay 25 boqolkiiba, ka sakow hoos u dhaca meelood oo meel dhammaan xoolaha nool gudaha dhaqaalaha 2022. Hoos u dhacan waxaa waday afar aagaga ay sida xun u saamaysay waxay dhinteen qayb hoosaad ee amaahda dhismaha, maalgelinta laga bilaabo badhtankii 2021. Intaaa waxa dheer, ganacsiga, hantida dhulka iyo dhismayaasha, iyo wax soo saarka dalagu waxa uu sii ahaaday mid maalgelinta iskaashi la samaynaya shirkadaha isku si xad dhaaf ah u liita. Tani waxay xoojisay dhibta biiray. Si kastaba ha ahaatee, bangiyada waxay aadanimada, iyaddoo ugu dhawaan nus ka mid ah weli halis ugu jitaan mowqif ka duwan, keliya mujtamaca oo amni daro cunto la kulmaya, iyo 1.3 amaahinaya ganacsiga maaliyada xiliga gaaban malyan oo qof oo barakacay. oo si la barbar dhigi karo amaahda badan taas oo saamigeeda ku jirta wadarta faylka baananku Cadaadiska sicir bararka la xoojiyay sanadka ay korodhay mudadii safmarka. Natiijo ahaan, 2022. Qiimaha macaamiisha waxa uu kordhay qoysaska waxaa laga mamnuucay inay ka soo nuskii hore ee 2022 iyaddoo ay sababtay amaahdaan bangiyada ganacsiga, ka sakow labbadaba asbaabo gudaha wadanka ah iyo lacagaha soo hadha oo ay sababtay fikraha khatarta dibadaba. Qiimaha alaabta, ee bilaabantay inay kordhay laga bilaabo ilaa dhibtii COVID-19. sare u kacdo badhtankii 2021, waxaa waday caqabadaha saadka isku xidhan ee caalamiga sh Qaybta dibada waxaa culays saaray abaaraha oo sii socotay in la kordhiyo iyaddoo ay sababtay iyo horumarka caalamiga ah. Xataa in kastaa xaaladaha daran ee abaarta. Abaarta ay yaraysay dhinaanshaha kootada hadda ay sii ahaatay mid awooda Soomaalida si ay u kobocdo oo ay u aan isbeddelin ilaa 16.8 boqolkiiba GDP sanadkii iibsadaan cuntaddooda, halkaasna ay kordhisay 2022 marka la barbar dhigo sanadkii hore, amni darada cuntadda. Isku wakhti, farogelinta qiimayaasha sare ee badeecadaha caalamiga ah Tuushka ee Yuukrayn waxay burburisay suuqyada iyo abaarta lama huraanka ka dhigtay korodhka cuntadda caalamiga ah iyo qiimayaasha tamarta. cunto soo dejinta, iyaddoo keentay biilka soo dejin Sicir bararka cuntadda guud ahaaneed waxay sii saliideed oo aad u saraysa. Dheelitiranka ganacsigu ahayd mid si wayn u saraysa oo aan joogsanayn wuu ka sii daray marka macaashyada alaabta marka la barbar dhigo muddooyinka hore. Dhab la dhoofiyo ee ka yimid xoolaha nool aanay ku ahaan, sicir bararka guud ahaan sare ayuu u kacay filnayn bilowga korodhka muhiimka ah ee biilasha Juulay 2022, oo waxa uu bilaabay inuu hoos u alaab soo dhoofinta. Dhinaanshaha maaliyada ay dhaco nus ka mid ah sanadka marka qiimayaasha maalgeliso xawaaladaha iyo deeqaha rasmiga ah. tamarta caalamiga ah ay bilowday inay khafiifto. Si Sababtoo ah wadanka salkiisa wax soosaarka liita kastabaha ahaatee, sicir bararka cuntadda waxay iyo jawiga maalgelinta ee adag, qaybta dibada ka sii saraysay 10 boqolkiiba gobolada qaarkood waxay ahaan doontaa mid nugul, qayb ahaan gaar ahaan Somaliland, iyaddoo muujinaysa sababtoo ah xaaladaha ganacsiga ee ka sii daraya. burburka saadka ay sababtay abaartu. Koboca xawaaladaha imaanshaheedu waxa uu November 2 0 2 3 | Edition No. 8 xiii Dhokumenti Kooban ahaa mid gaabis ah 2022, oo muujinaysa xaaladaha Muuqaalka Xiliga Dhexe Waxay dhaqaalaha caalamiga iyaddoo ay qurba joogta tilmaamaysaa Soo kabashada Soomaaliya la kulmeen xaalado maaliyadeed oo Baanka Adduunka waxa uu muujiyaa in adag iyo qiimayaasha sicir bararka sare halka ay ku dhaqaalagu waxay duubi doonaan koboca ugu nool yihiin. hooseeya ee 2.8 boqolkiiba sanadka 2023. Marka tani hoos u dhacday heerka koboca dad waynaha Dowladda federaalka Soomaaliya (FGS) waxay sii Soomaaliya lagu qiyaasay ee 2.9 boqolkiiba, si wadaa bandhigeedii maaliyada ee ka horeeyay waxtar leh macnaheedu waxa weeye in GDP COVID, laakiin boosta maaliyada si looga qofkiiba waxay hoos u dhacaysaa 0.1 sanadka jawaabo dhibaatooyinka ama in la maalgeliyo 2023. Dhaqaalaha waxaa la filayaa inuu doorto badeecadaha guud weli way xadidan tahay. xiliga dhexe maadaama hawlaha dhaqaalahu way Maaliyadaha dad waynaha waxay u horumareen korodhaa, iyaddoo koboca la filayo inay kordhiso si calaamad san sanadkii 2022, ka dib cadaadiska aayar ilaa 3.7 boqolkiiba iyo 3.9 boqolkiiba sanadka maaliyad agudaha 2021 oo ay sababtay is marin 2024 iyo 2025, si la xidhiidha. Koboca la filay 2023 waaga siyaasadeeda. Ururinta dakhliga federaalka dib ayaa loo eegay hoos 0.8 boqoliiba marka la waxa uu ka batay heerarkii ka horeeyay COVID, barbar dhigo 2022 Cusboonaysiinta Dhaqaalaha o dhaafay yoolka sanadlaha ah ee 5 boqolkiiba (Baanka Adduunka 2022) saadaasha. Si kastaba sanadkii 2022. Wadarta deeqda deeq bixiyaha ha ahaatee, soo kabashada weli waxaa la filayaa aad ayay u saddex laabantay marka la barbar inay sii adkayso dhaxalka jugtii hore, ay ku jiraan dhigo 2021, iyaddoo ay sababtay dib u bilowga abaarta, burburka saadka badarka ah ee ka yimid taageerada miisaaniyada iyo deeqaha kordhay Yuukrayn, iyo safmarka caalamiga ah. Jigtan waxaa ee mashruuca oo jawaab u ah abaarta daran. ka sii daray saboolnimada oo waxay keentay sare u Ka sakow, xaalada maaliyadu waxay sii ahaatay kaca kharashka nolosha. caqabad, oo bixiso fursado xadidan miduun inay ka jawaabaan dhibaatooyinka ama maalgelinta Xadka muuqaalka waxa uu aqbalaa soo kabashada horumarka aadamaha iyo kaabayaasha muuqda. In caadiga ah sidii xaaladaha cimilada inay kastoo ururinta dakhliga wadanka ay horumartay horumarto, qiimaha alaabta caalamiga ah way sii muddo ka dib, way hoosaysaa weli oo kuma fududaataa, oo maalgeliayayaasha kalsoonidiisa filna inay buuxiso baahiyaha soo noqnoqda ee way korodhaa. Qiimaha badeecadaha ee hoos u kharashka. Dakhiga wadanka waxa uu maal gelin dhacaya caalami aha waxay ku lahaan doontaa karaa keliya ilaa saddex meelood oo meel wadarta saamayn wanaagsan oo xoogan dhaqaalaha kharashyada 2022, isagoo u baneeyaya qayb wayn wadanka iyaddoo kodhinaysa hawsha dhaqaalaha. oo maaliyada inay maalgeliso deeqaha dibadu, siiba Waxaa loo qaatay in celceliska roobku uu keeno xaalada caqli celinta ah ee kharashkada la siman soo kabashada aayarta ah ee wax soo saarka khayraadka la heli karo. Markaana, kharashyada beeraha oo wata soo kabasho caadi ah oo dad waynahu sare ayay u sii kacaan, iyaddoo ay dhoofinta alaabta ah gaar ahaan badhka labbaad maamulaan kharashyada shaqaalaha. Si kastaba ee 2023. Taageerada sii socota ee aadaminimada ha ahaatee, kharash garaynta bulshadda si wayn iyo taageerada ilaalinta bulshaddu waxay ka dayri waxaa u maalgeliya deeqaha. Kharashyada FGS doontaa qoysaska ku lidka saamaynta abaarta waxaa maamula biilka mushaharka iyo isticmaalka hadhay. Sidoo kale waxay u qaadataa kalsoonida badeecadaha iyo adeegyada marka wadanku uu sii maalgeliyaha waxaa ka farxiya qorshayaasha wado inuu dhiso shaqooyinka aasaasiga ee looga cusub ee dowladda si loo dejiyo maaliyadaha baahan yahay degenaanshaha iyo qaran dhisida. dad waynaha, iyo rajada wadanka ee gaadhida Cabirka biilka mushaharka laguma maal gelin karo Wadanka Saboolka ah ee Wayn u Qaamaysan dakhliyada cashuurtu. (HIPC) Qodobka Dhamamystirka dhammaadka xiv S om a l i a Eco n om i c Update Dhokumenti Kooban 2023, markaana kordhinaysa khatarta damaca beeraha inay hoos u dhacdo marka cunto yaraanto maalegliyayaasha. Dib u habbaynta dhaqaalaha ay ka sii darto, iyaddoo keenta soo dhoofinta iyo maalgelinta dad waynaha korodhay waxay cuntadda oo korodha si ay u ilaaliso mujtamaca soo jiidanaysaa maalgelinta tooska ah ee ajnabiga nugul; (iii) bandhiga dhoofinta liita ee ay sababtay (FDI) oo waxay dhiirigelisaa qaybta garka ah abaarta; (iv) hoos u dhaca dhaqaalaha ee caalamiga ee hawsha ballaadhan, taas oo guud ahaan ah ee ay sababtay heerarka dulsaarka sare; iyo/ama taageeraysa awooda wax soo saarta wadanka ee (v) jugraafiga siyaasadeed ee uu wado burburka yar. Xiliga dhexe, qaybsiga macaashka ee nabada nidaamka ganacsiga caalamiga ah. Muuqaalka ah iyo tanaasulka amaahashada furan ka dib dayn dhanka sare, korodhka waxa uu ahaan doona mid ka cafinta waxay kordhin doontaa koboca wax soo aad u adkaada, ilaa 3.3 boqolkiiba gudaha 2023 saarka. iyo 4.2 boqolkiiba gudaha 2024. Muuqaalkan waxa uu u qaataa: xaaladaha cimilada oo hagaagay oo Khataraha Muuqaalku Waxa uu u keena soo kabashada wax soo saarka beeraha iyo Janjeedhaa Hoos dib u noqodka sii socda ee saamaynta abaarta; Aragtiyada xiliga dhexe lama hubo oo waxay khilaafka Yuukrayn oo si degdeg ah loo xaliyo; ku sii socon doontaa inay ahaato mowduuca iyo adkaynta caalamiga ah oo keenaysa hoos khataraha ka yimid horumarka caalamiga udhaca caalamiga ah. Si waafaqsan muuqaalkan, ah, jugta la xidhiidha cimilada, iyo khataraha koboca waxaa waddi doono isticmaalka gaarka amniga. Khataraha muuqaalku waxay u eeg ah ee sare iyo ka guud, maalgelinta sare ee tahay inay u janjeedho hoos sababtoo ah wadanka gudahiisa iyo ka dibada ka yimidaa ka korodhka kharashka nolosha ee sare iyo abaarta. dib HIPC Qodobka Dhammaystirka 2023, oo waxay Cadaadiska gudaha suuqyada alaabta caalamiga kordhisay shabakada dhoofinta marka xisaabta ah waxay keeni kartaa isbeddelka qiimaha ee hadda horumarto, kordhaya. Isbeddelka cimilada waxay sii xumaysaa gaadhida jugta cimilada la xidhiidha, wadan Ahmiyadaha Xeerka ee Soomaalua gudaha ahaan waxay ku tiirsan tahay da'ida roobka si ay Xiliga kala guurka Ka dib HIPC u taageerto koboca wax soo saarka iyo dhoofinta Marka Soomaaliya gaadho Qodobka alaabta. Korodhka rabsahda ama dhacdooyinka Dhammaystirka HICP, waa muhiim inay sii wado cimilada lidka ah ee sida muuqata u sii xumaysa dhabadeeda dib u habbaynta si looga guul dhibaatooyinka joogtada ah ee aadamaha oo gaadho koboca dhaqaalaha iyo barwaaqada si yaraysa koboca. Khatarahan waxay xanibi karaan la isaga ilaaliyo daynka mustaqbalka gudaha hawsha dhaqaalaha oo waxay dib u celin karaa xiliga dhexe iyo ka dib cahdiga HICP. Marka dib koboca soo kabashada gudaha xadka muuqaalka. u habbaynta loo baahday ay badan yihiin iyo dhammaan qaybaha badan, warbixinta keliya Iyaddoo ay muuqato isbeddelka dhaqaalaha waxay muujisaa xeerarka dhaqaalaha gebi ahaan Soomaaliya iyo khataraha sare ee koboca, iyo dib u habbaynta sare u qaada koboca loo Cusboonaysiintan Dhaqaalaha waxay ka fekertaa dhan yahay iyo dhismaha wakaaladeed.2 Kuwan muuqaalka beddelka ah ee koboca muuqaalka waxaa ku jira sare u qaadista meesha maaliyada guud. Muuqaalka hoose, dhaqaalaha waxaa la ee ahmiyadaha horumarinta marka la xoojinayo filayaa inuu kordho ilaa 2.1 boqolkiiba 2023, maamulka kharashyada baxaya; xoojinta wada korodhka keliya 2.9 boqolkiiba 2024. Filashadan jirka maaliyada; ku dhafida Soomaaliya gudaha waxay muujinaysaa: (i) xaaladaha cimilada liidata nidaamka maaliyada caalmiga ah; iyo horumarinta ee wadata abaarta ama daadka; (ii) wax soo saarka maamulka daynta. November 2 0 2 3 | Edition No. 8 xv Dhokumenti Kooban · Si sare loogu sii qaado meesha maaliyada dhaqan gelinta Sharciga Haydaha Maaliyada ee ahmiyadaha horumarinta, baahiyaha iyo Sharciga Nidaamyada Lacag bixinta Qaranka dowladda si loo urursho dakhli badan iyo waxay taageeri karaan degenaanshaah qaybta xoojinta xakamaynta kharashka. Masuuliyiinta maaliyada oo waxay dhammaan keenaan Soomaaliya waa inay ilaaliyaan ballan qaadka nidaamyada waafaqsan hal sharci. Intaa waxa si la isaga ilaaliyo dhinaanshaha miisaaniyada dheer, yaraynta caqabadaha ay la kulmaan socota oo loo sameeyo lacag bixinta wakhtiga ganacsatada Soomaalida ah –ay ku jiraan kuwan habboon ee uu taageero meesha banaan ee ay leeyihiin oo ay maamulaan haweenka –helida maaliyada. Dowladda Federaalka Soomaaliya maaliyada ka qaybta ah korodhka awooda ee (FGS) iyo Xubinta Dowladda Federaalka hay'adaha maaliyada si loo fududeeyo sida (FMS’) waxay sii wadi doonta dedaalada si loo loo arko khataraha iyo horumarinta daynta iyo horumariyo xeerka cashuurta ee xooga saaraya diiwaanada damaanadaha ayaa caawin kara ku haboonaysiinta nidaamyada cashuurta in la kordhiyo helida alaabta maaliyadeed. Si ee nidaamka kastamada cashuuraha iyo loog dhafo nidaamka maaliyada caalamiga, dakhliga gudaha wadanka kaas oo sidoo kale daacadnimada maaliyada ayaa u baahan doonto hore u sii wada ajandaha federaalka. Xoojinta in la horumariyo. Dhaqan gelinta aqoonsiga xakamaynta ku saabsan xeerka mushaharka Sharciga Dhigitaalka ah waxay bixin kartaa waxay noqon kartaa ahmiyada, gaar ahaan ku tallaabooyinka koowaad dhanka hirgelinta saabsan khaashyada gaarka ah ee marka laoo aqoonsiga dhijitaalka ah (ID) ee caawin karta si baahdo ah iyo gunnooyinka. Maadaama xeerka looga hadlo garo macmiilkaaga iyo walaacyada mushaharka kharashyada ay ka dhigan yihiin baadhitaanka sidaas awgeed taageeraysa wax ka badan nus kharashyada dad waynaha, dhisida xidhiidha baan isticmaalka is waafaqsan. horumarinta maamulku waa u muhiim in sare Horumarka Soomaaliya waxa uu xoojinayaa Ku loo qaado waarida maaliyada. Marka la gaadho lid ahaanshaha dhiqida lacagta / la dagaalanka Goobta Dhammaystirka HIPC. waxaa jiri kara maalgelinta argagixisada (AML/CFT) ajandaha fursadaha in la amaahdo maalgelinta cusub waxaa la qiimayn doonaa 2024. Diyaarinta ee maaliyada ee raasamaalka aadamaha iyo qiimaynta khatarta qaranka waxay caawin kaabayaasha muuqada. FGS waxay qaadi kartaa doontaa Soomaaliya inay u diyaar garowdo tallaabooyinka si loo horumariyo haykalka qiimaynta labbada ah, taas oo ay hogaamiso sharciga ee ku filan si loo taageero amaahashada Bariga dhexe iyo Waqooyiga Afrika Kooxda iyo awooda xoojinta si loo maareeyo khataraha Heeganka Tallaabada Maaliyada (MENA-FATF). maaliyada, gaar ahaan haddii dowladaha · FGS waxay u baahan tahay horumarinta qaab federaalka iyo gobolka geli iskaashiyada dhismeedka maamulka daynteeda. Khataraha dad waynaha-gaarka ah iyo tanaasulaadka waarida daynta way sii socon doontaa xataa habbaynta cusub. ka dib Soomaaliya markay gaadho Goobta · Si loo kordhiyo helida maaliyada oo loogu Dhammaystirka HIPC oo hesho dayn ka cafinta. dhafo nidaamyada maaliyada kuwa kale ee Wadanku waxa uu u baahan yahay inuu qaado nidaamyda maaliyada caalamiga ah. Si loo tallaabooyin damiirku soo jeedo si la isaga kordhiyo helida maaliyada, dowladda iyo ilaaliyo in dib loogu noqdo meeshii daynka Baanka Dhexe ee Soomaaliya (CBS) waxay qaadi aan waarida lahayn marka ay dib u soo hesho kartaa tallaabooyin la taaban karo si loo qoto maaliyada horumarinta. Intaa ka sakow, si loo sii dheereeyo ka qayb gelinta maaliyadeed iyo sare wado heerka maaliyada xikmada leh, aad ayay u qaadista degenaanshaha qaybta maaliyada. muhiim u tahay in la xoojiyo qaabka sharciga u Ku talaabsida kormeerida MTBs ee CBS siiba samaysan yahay ee maamulka daynta, bulshadda xvi S om a l i a Eco n om i c Update Dhokumenti Kooban qaabkeeda lagu soo saaro shaqooyinka Qaybta tahay kala duwanaanshaha sare ee roob soo Maamulka Daynta (DMU), oo la dhiso awooda da'ida, siiba oogada iyo kaydka biyaha dhulka maaraynta khataraha maaliyada, ay ku jiraan hoostiisa iyo biyaha qulqulaya. In ka badan kuwa ka yimid dayn suuragal ah. Sharciga kala badha biyaha oogada wadanku waxa uu ka koowaad ee daynka waa inuu caddeeyaa yimaadaa meel dhaafsiisan xadadka qaranka, ujeedada amaahsashada, isticmaalka muhiim ahaan gudaha Itoobiya. Abaaraha iyo damaanadaha iyo cid kale sii amaahinta, daadadku waa kuwa ku badan. Haddii biyaha iyo baahida oggolaanshaha baarlamaanka buluuga ah (ee ka yimaada dhagaxa biyaha dhammaan amaahashada gudaha iyo dibada, qabta, kaydka oogada ka hooseeya, webiyada, siiba soo saarida damaanada. Horumarinta iyo kaydadka biyaha waxaa loo qoondeeyay sharciyada koowaad waxay caawin kartaa in baahiyaha aadka u so wax soo saark abadan oo la siiyo qaabka awood siinaya wakhti marka loo maareeyo si waxtar leh, Soomaaliya waa inay Soomaaliya ay mar labbaad amaahan karto. hasytaa Biyo ku filan, Sixo iyo Caafimaadk (WASH), adeegyada waraabinta xoolaha, siiba baahiyaha Ku dhafisa Isbeddelka Cimilada Ajandaha ballaadhan ee dhaqaalaheeda mustaqbalka. Taas Koboca ee Soomaaliya: Xaalada Biyaha lidkeed, soo saarida cuntaddu waxay u baahan Inta jeer ee korodhka iyo sida ay u wayntahay tahay tiro badan oo biyo ah. Badanka tan waxaa jugtu, gudaha Soomaaliya si toos ah waxay u bixiya biyaha cagaaran, oo ah biyaha laga helo saamaysaa dadka saboolka ah oo waxay ka camuuda ka dib marka uu roobku da'o iyo ka dibna qayb qaadataa barakaca, cunto yaraanta iyo ay soo saartay dhirtu—haddii ay tahay doog (ay khilaafyada. Biyaha Soomaaliya waa waxyaabaha cuneen xoolahu), ama dalag (ay cuneen dadka iyo ugu muhiimsan dhisida adkaysiga, horumarinta xoolahu). Si kastaba ha haatee, waraabintu waxay badhaadhaha, iyo horumarka dhaqaalaha. Si u baahan tahay tiro badan oo biyaha buluuga ah si wanaagsan ayaa loo fahan san yahay in biyaha— loo soo saaro cunto ama dalag kale. oo ay ku jiraan kala duwanaanshadeeda iyo yaraanshaha—ayaa si dhow ugu xidhan wax soo Soomaaliyada mujtamaceeda waxaa lagu saarka dhaqaalaha, ganacsiga caalamiga ah, qiyaasay inuu yahay ilaa 17 malyan sanadka 2023 samaynta raasamaalka aadamaha, saboolnimada, (UNDESA 2019), laakiin waxaa ku kordhi kara iyo saamaynta xun ee aan la filayn ee dhaqaalaha. ilaa 550,000 sanadkiiba oo waxay gaadhi kartaa Dheelitirka dalabyada cuntadda iyo saadka 35 malyan sanadka 2050. Mujamacn kordhayaa biyaha sidoo kale waa xudunta ajandaha koboca waxa uu u baahan yahay cunto badan iyo biyo, ee Soomaaliya. Iyaddoon lahayn isbeddelo wayn labbadaba hadda lagu qaato qiimayaal aad u gudaha bulshadda, xeerka iyo siyaasada, hoos u hooseeya, sidaasna ka qayb qaadanaya heerarka dhaca hadda ee helitaanka cuntadda waxaa dhici sare ee faqiirnimada.. Ilaa iyo 1975, waxaa jiray karta inay sii socoto, sidaasna ay yarayso koboca hoos u dhac qaadashada cuntadda qofkiiba ah dhaqaalaha oo ka sii darto heerarka saboolnimada. gudaha Soomaaliya. Iyaddoon lahayn isbeddeladan waa wayn, cunto yaraanta soo noqnoqota, iyo xaaladaha aadka u Soo dhoofinta cuntaddu waa muhiim gudaha adag waxay noqon doonaan curfiga kuwa badan Soomaaliya oo sidaas ayay ahaan doontaa todobaanka sano ee soo socda. mustaqbalka. Si kastaba ha ahaatee, waxyaabahan la soo dhoofsadaa waxay u baahan yihiin inay Cimilada Soomaaliya waxay ka kooban tahay amni noqdaan oo la bixiyo lacagtooda. Hadda, dhul aad u engegan, ilaa dhul engagan, iyo dhulka xawaaladaha ka iminaya qurba joogta Soomaaliya, kulaalaha saxaare u eekaha ah, waxay ku xidhan kaalmada caalamiga ah iyo macaashka laga helo November 2 0 2 3 | Edition No. 8 xvii Dhokumenti Kooban wax dhoofinta ayaa lagu bixiyaa cuntadda la soo iyo abaaraha. Si kastaba ha ahaatee, lidkeed sidoo dhoofsado. Labbada u horeeya suuragal ahaan kale waa run, sida go'aamada ku saabsan beeraha, waa ilaha taageerada aan la isku halayn karin. isicmaalka dhulka iyo horumarinta magaalada, iyo Mustaqbalka, Soomaaliya waxay u baahan tahay xeerka dhaqaalaha dhammaan waxay leeyihiin inay horumariso ganacsiga, wax soo saarka cawaaqib wayn oo ah waarida iyo soo kabashada beeraha (dalaga iyo xoolaha nool) oo ay sare u khartaada biyaha ee Soomaaliya. Biyo yaraanta, ay qaado macaashyada laga helo wax dhoofinta si loo ku jiraan fatahaada daadadka iyo abaaraha, waxaa quudiyo wadanka. sii kordhiya burburka deegaanka, goynta kaymaha, iyo isbeddelka cimilada. Raadka biyaha Soomaaliya ee maanta, ugu dhawaan 650m3/qofkii/sanadkii, way yar tahay. U socodka dhanka dhaqaalaha la isticmaalo Raadka isticmaalka ugu badan gebi ahaantiis oo dibna loo isticmaalo waxay kordhin kartaa waxa uu ka dhigan yahay biyaha ay qaadato in adkaysiga Soomaaliya khayraadkeeda biyaha cunto lagu beero. Marka la eego mustaqbalka, iyo dhaqaalaha. Wadamo badan oo ku xeeran iyo ganacsiga sidii muuqaal caadi ah, sanadka adduunku waxay ka dhursugayaan dib u isticmaalka 2050, khayraadka biyaha la helii karo qofkiiba ama dib u warshadaynta alaabta la isticmaalay ee gudaha Soomaaliya ee isticmaalku keliya waxay khayraadka biyaha yar wixii ah ujeedooyin kala noqon karaan 365m3/qofkii/sanadkii. Iyaddoonay duwan, ay ku jiraan beeraha iyo kaydka biyaha jirin biyo la isticmaalay oo badan, soo dhoofinta magaalada. Mid ka mid caqada dib u isticmaalka heerarka aadka u hooseeya ee isticmaalku waxa wajahaysa wadamo badan waa inay hadda ka uu la xidhiidhi doonaa qaadashada cuntadda oo hor aad u maalgeliyeen teknoolajiga biyaha aad u hoosaysa.3 Haddii Soomaaliya ay ku tiirsan dhaqameed oo badan iyo kaabayaal, sidaasna uga tahay khayraadka biyaha gude ahaan dib loo dhigta kharashyada u wareegida kuwa mamnuuc cusboonaysiiyo iyaddoon cunto la soo dhoofsan, ah. Kaabayashaasha Soomaaliya ee aan aad u iyo biyaheeda la isticmaalay ee la xidhiidha, horumarsanayn iyo qaababka bixinta adeegyada wadanku waxa uu u nuglaanayaa cunto yaraan waxay bixin kartaa waxyar oo faa'iido ah halkan, daran. Mustaqbalkan waa inaan la oggolaan inuu maadaama ay ka qayb ahaanayaan maalgelinta dhaco. teknoolajiga qarniga 20naad. Gudaha Soomaaliya, biyahu maaha qaybta Soomaaliya hadda ka hor waxay bixisaa walaaca leh laakiin waa suurageliyaha muhiimka tusaalooyin wanaagsan ee la macaamilka biyo ah iyo caqabada kobica dhaqaalaha. Si kooban yaraanta iyo kala duwanaanshaha. Qarniyo aad haddii loo sheego, guusha dhaqaalaha Soomaaliya u badan, waa nidaamyada reer guuraaga ay la si qoto dheer ayay u saamayn doonta xadka qabsadeen kala duwanaanshaha cimilada iyaddoo wadanku uu awoodo inay si buuxda u maamusho la hayaaminayo xoolaha si looga faa'iidaysto khayraadkeeda biyaha la heli karo ee cagaarka iyo da'itaanka roobka iyo meesha. Si kastaba ha buluuga, ay ku jiraan u qoondaynta iyaga qiimaha haatee, si kordhaysa waxay ula kulmaan caqabado, u sareeye ee isticmaalka bulsho, dhaqaale, iyo ay ku jiraan dhibaatooyinka si fudud u helida deegaan. U maaraynta biyaha si wanaagsan sidoo daaqa la daaqo, khilaafka, iyo yaraanshaha biyaha kale waxay muhiim u tahay caawinta wadanku ee xoolaha maraya jidadka ay ku hayaamaan. inuu la tacaalo kala duwanaanshaha cimilada iyo Dhibaatooyinkan waxay u baahan yihiin in wax laga isbeddelka cimilada ee debcinta dhibaatooyinka qabto si loo horumariyo wax soo saarka beeraha, dhaqaalaha, gaar ahaan kuwa ka yimaada daadadka labbadaba suuqa gudaha iyo dhoofintaba. xviii S om a l i a Eco n om i c Update Dhokumenti Kooban Siinta biyo la cabo oo badbaado ah oo la isku daray qaybta Wasaarada Tamarta iyo Khayraadka halayn karo iyo helida sixo ku habboon aagaga Biyaha. Horumarkan maamulka waa tallaabo magaalada Soomaaliya ee kobcaysa waxay u muhiim safarka dheer si loo horumariyo qaybta baahan tahay fahan qoto dheer. Qaybta biyaha ku sifaysnayd burburka, la'aanta xadadka cad ee miyiga si wanaagsan ayaa loo fahmaa oo loot masuuliyadaha ee u dhexeeya qaranka, gobolka, aageeraa, oo mashaaricda jiraa si wayn ayaa loo degmadda, iyo masuuliyiinta degmadda. qiyaasaa iyadoon lahayn dib u habbayn badan. Xiliga gaaban, waa muhiim in la fahmo biyaha Soomaaliya si ay u sii wado ka wareegida saadka biyaha magaalada iyo sixidada, taxliilinta jilicsanaanta oo loo horumariyo u adkaysiga shaqada waa inay xooga saarta fahanka biyaha qoyska ee waxyaabaha naxdinta leh, una helaan iyo u gudbinta adeegyada sixida qoysaska iyo biyo waa muhiim. Biyaha waxaay suurageliyaha shirkadaha gudaha aagaga magaalada, furida muhiimka ah ee horumarka aadamaha, horumarka doorarka adeegyada byaha soo baxaya, iyo magaalada, shaqo abuurka, iyo wadaha koboca go'aaminta maamulka farsamada ku habboon. Tani dhaqaalaha xiliga dheer. Kordhinta awooda waxay caawin dootaa bixinta adeegyada korodhka adkaysiga iyo barwaaqada, Soomaaliya waxay magaalada degdega ah oo waxay ka qayb qaadan u baahan tahay xeerka isku dhafka ah ee doontaa isku xidhida u dhaxaysa dhaqaalaha miyiga dhaqaalaha ee biyaha keena badhtankeeda oo ku iyo magaalada. Iyaddoo ay caddayn xidhiidhada u daro tallooyinka la xidhiidha shanta fursadood ee dhexeeya waxbarashadda hablaha, iyo helitaanka isbeddelka iyo casriyaynta, ay ku jiraan: biyaha iyo sixida, siiba doorashooyinka maamalka · Xaqiijinta isku xidhka iyo gudbinta wadahalka caafimaadka xaydka gudaha dugsiyada iyo bulshadda oo dhan ee biyaha. yaraynta korodhka mujtamaca, dugsiga WASH · Ka faa'iidaysiga isticmaalka labbadaba biyaha sidoo kale waxa uu muhiim u yhahay isbeddelka buluuga ah iyo kuwa cagaaran si loo kobciyo guud ee Soomaaliya. dhaqaalaha qaranka. · Kordhinta dakhliyada dhoofinta alaabta, Sanadihii dhawaa waxay muujiyeen horumarka iyo u beddelka qaybta xoolaha nool ee ku suntan maamulka biyaha, oo horumar Soomaalyamid la mid ah nooca adduunka, ayaa ka jiray dhanka horumarinta qaab xoolo aad u tayo sareeya iyo suuqa dhoofinta dhismeeyada wakaalada ee qaybtan, Xeelda hilibka. Khayraadka Biyaha Qaranka waxaa la daabacay · Gelida dhaqaalaha isticmaalka iyo dib u 2021, iyaddoo dhammaystir u Qorshaha u isticmaalka alaabta leh iyo deegaanka degan Hirgelinta. Qorshaha la dejiyay waxa uu oo ku dhisan adkaysiga, casriyaynta, iyo caddaynayaa fursashada si loogu isticmaalo nidaamyada isku dhafan. biyaha horumarka dhaqan bulsheed oo waxa uu · Dhisida nidaamyo adag, laga wada qayb muujinayaa helitaanka loo siman yahay ee biyaha qaato, maamulka hufan ee maaraynta inay caawin karaan yarayanta khilaafka. Nuska biyaha. koowaad ee 2023, Xarunta Isku xidhka Qaybta Biyaha iyo kooxda shaqada farsameed waxaa lagu November 2 0 2 3 | Edition No. 8 xix RECENT ECONOMIC DEVELOPMENTS November 2 0 2 3 | Edition No. 8 1 Recent Economic Developments 1. Somalia’s Economy Remains Fragile amid Increased Recurrent Shocks 1.1 The Global and Regional Context by global trade, high commodity prices, and domestic demand. Economic activity is The global economy slowed significantly in projected to further slow to 2.5 percent in 2023 2022. After a sharp rebound in 2021, the global because (i) the global economy continues to be economy decelerated sharply in 2022, growing persistently sluggish; (ii) central bank rates are at 3.1 percent from 6.0 percent the previous rising to fight inflation; (iii) inflation rates remain year (World Bank 2023a). High inflation, rapid high, although declining; and (iv) challenging monetary tightening, reduced fiscal support, global and domestic financial conditions persist and major energy disruptions in Europe slowed amid high levels of debt. Growth is estimated economic activities in 2022. However, towards to increase to 3.7 and 4.1 percent in 2024 and the end of 2022, global conditions improved as 2025, respectively. According to World Bank inflation started to decline in the United States. (2023c), the increased growth forecasts are due Also, gas prices in Europe started to decline. to the easing of austerity measures, and more In addition, China’s economy rebounded as accommodative monetary policy amid falling the country loosened its zero-COVID-19 policy, inflation. leading to a better-than-expected growth. Global growth is expected to decelerate Similarly, growth in fragility, conflict and further in 2023 to 2.1 percent as a result of violence-affected, low-income countries (FCV policy tightening aimed at containing very high LICs) slowed as a result of global developments. inflation, worsening financial conditions, and Growth in FCV countries grew at a rate of 2.5 continued disruptions from Russia’s invasion of percent in 2022 from 1.2 percent in 2021. As Ukraine. The world’s largest economies are all in other regions, growth was also affected by undergoing a period of pronounced weakness, global developments, higher inflation, conflicts, adverse weather events, and rising production and the resulting spillovers are exacerbating costs. These factors also kept food supplies other headwinds faced by emerging markets tight. Growth in these economies is projected and developing economies. The combination to average 5.4 percent in 2023–24, broadly of slow growth, tightening financial conditions, in line with previous forecasts. However, if and heavy indebtedness is likely to weaken Ethiopia (the largest fragile LIC) and several investment and trigger corporate defaults, fragile states that are expected to complete thereby generating further negative shocks that large mining projects (Democratic Republic of could push the global economy into recession. Congo and Mozambique) are excluded from the growth forecast, the outlook will substantially Sub-Saharan Africa’s recovery was abruptly worsen, with downgrades of 0.4 percentage interrupted by the global slowdown. Sub- point both in 2023 and 2024. The reduced use Saharan Africa’s GDP growth slowed to 3.6 of fertilizer and other farming inputs, whose percent in 2022 from 4.4 percent in 2021, as costs rose sharply, is envisaged to result in surging inflation and weaker external demand below-average agricultural production in 2023. weighed on economic activities in the region. Moreover, fragility, conflict, and climate change Inflation rose sharply across the region amid are set to continue to drive poverty and food soaring global prices for staple foods and energy insecurity and restrain growth by amplifying and depreciating currencies. However, growth the weakness in domestic demand. was better than expected as it was supported 2 S om a l i a Eco n om i c Update Recent Economic Developments 1.2 Recent Economic Developments Growth in 2022 was driven by private in Somalia consumption. Somalia’s growth in 2022 was driven by private consumption, which was Recurrent shocks dampened economic activity in 2022 supported by remittances and official grants. Despite higher prices, private consumption Somalia’s economy faced further turbulence increased, driven by pent-up demand in 2022, due to climatic and global commodity associated with the lifting of the COVID-19 shocks. The World Bank estimates GDP growth pandemic restrictions. However, rising food and to have slowed to 1.7 percent in 2022, from fuel prices eroded Somalis’ purchasing power, 2.9 percent in 2021 (Figure 1.1). The slowdown hampering higher growth. Food and energy in economic activity in 2022 was a result of price increases reflect larger-than-expected and a prolonged drought that persisted for five more persistent damage to consumer demand consecutive seasons of failed and irregular from sharp cost-of-living increases, amplified rains and higher commodity prices. These by other vulnerabilities, such as unfavorable factors were a drag on growth and paused weather and insecurity. Government 2021’s modest economic recovery from the consumption slowed in 2022, contributing 0.6 COVID-19 pandemic. The economy continues percent to growth compared to 0.9 percent in to be weakened by a series of exogenous 2021. The prolonged electoral stalemate led and persistent shocks, including decades of to a withholding of budget support by donors, conflict, recurrent climate shocks, desert locust leading to increased fiscal pressures. Similarly, infestation, disease outbreaks, and recently the political impasse affected the business the impact of the COVID-19 crisis (Figure 1.1). environment, slowing investment. Livestock production suffered in 2022 as the number of live goats and sheep (Somalia’s The severe drought also undermined the main export product), declined by 3.1 percent balance of payments. The drought reduced the of the total live animals exported in 2022. supply of live animals for export, while imports However, increases in private sector credit, a surged owing to both high global commodity rise in construction activity, and an increase in prices and increased domestic demand due intermediate imports helped support economic to the drought. Exports of goods and services activity and prevented the economy from declined to 17 percent of GDP compared to 20.1 contracting further. percent in 2021, whereas imports increased by Figure 1.1: Somalia’s economy continues to be buffeted by 10 percentage points to 96.2 percent of GDP exogenous shocks during this period. The current account deficit 6.0 Agreement on the Provisional Constitution worsened to 16.8 percent of GDP in 2022, from 5.0 12.5 percent the previous year. 4.0 3.0 Increased insurgency activities and Percent ongoing military operations to secure the 2.0 Drought Drought country intensified challenges from forced 1.0 displacement. The government is undertaking 0.0 a military offensive against Al-Shabaab to -1.0 Triple Crisis weed out the militants from many areas of 2014 2016 2018 2020 2022e 2024f southern and central Somalia. This operation is Real GDP growth Average 2014-22=2.8% in line with the UN Security Council Resolution Source: SNBS 2022 and World Bank Estimates (2023). which reconfigured the African Union Mission As civilians escaped from the war zone to safer areas. 4 in Somalia (AMISOM) into the African Union November 2 0 2 3 | Edition No. 8 3 Recent Economic Developments Transition Mission in Somalia to support the FGS Drought stymied the performance of the in its efforts to continue countering Al-Shabaab. agricultural sector. According to the United The expressed hope is that the FGS will gradually Nations (UN), the drought devastated the assume greater security responsibilities going agriculture sector—the backbone for rural forward. This military offensive, which began in and urban population livelihoods, and the 2022, has resulted in widespread insecurity and source of Somalia’s exports (UN OCHA 2023). an acute deterioration of humanitarian access, One-third of all livestock in the worst-affected mostly in the rural areas. According to the UN, areas had cumulatively died since mid-2021. up to 621,000 civilians were displaced due Crop and livestock production remained to conflict in 2022. However, the operations extremely poor during this period, as drought provided increased economic opportunity for conditions affected 90 percent of the country. expanded access into areas previously under As a result, average Deyr (October–December) Al-Shabaab control. Despite the operation, the season rainfall in 2021/2022 was below risk of insecurity through constant threats from average. As such, it was characterized by more militant attacks, abductions, landmines, and depressed rains with poor spatial and temporal violent crime remains high. distributions and harsh conditions as compared to previous similar periods. The worst affected Prolonged drought dampened growth and regions included Lower Juba, Middle Juba, intensified a humanitarian crisis in 2022 Gedo, Mudug, Nugaal, Bari, Toghdheer and Sool, Severe drought and high food prices weakened which experienced severe water shortages for household livelihoods and purchasing power. domestic purposes, livestock, and agricultural After five consecutive failed rainy seasons, the production (FAO 2021). 2021/22 drought was the longest and most severe in recent history. Indeed, it surpassed The erratic and marginal rains resulted in poor the 2010/2011 and 2016/2017 droughts in pastures and low agricultural production. The terms of duration and severity (OCHA, 2023). 2022 Deyr rains only marginally replenished Extreme drought left Somalia on the verge of a pasture and water resources. They enabled humanitarian catastrophe, destroying crops and crop cultivation in some areas, albeit with livestock, and forcing huge numbers of people cumulative rainfall ranging from 25 to 55 to leave their homes in search of food and percent below average across most parts water. It also escalated staple food prices, with of Somalia. In southern Somalia, the cereal the average price of red sorghum having more harvest was estimated at 40–60 percent below than tripled in Bay and Shabelle. At the same the 1995-2021 average, and there were very time, the value of livestock (a main source of few agricultural labor opportunities for poor livelihoods) plummeted, from US$319 paid per households relying on this income source. In cattle to the current US$273. The situation was the agropastoral and riverine livelihood zones, exacerbated by ongoing conflict, global supply water levels were low in the Juba and Shabelle shocks, and the Ukraine-Russia crisis. The rivers due to poor rains. In addition, the area impacts of the drought were also compounded planted was far below normal, as households by the effects of the COVID-19 crisis, increased were displaced away from their farms, and conflict, displacement, as well as a severe farmers had reduced ability to afford seeds, desert locust upsurge in 2020 and 2021. irrigation, and other inputs. Moreover, the 5 The UN Security Council Resolution S/RES/2628 (2022) authorized African Union member states to deploy up to 19,626 uniformed personnel including a minimum of 1,040 police personnel — until December 31, 2022. A deployment of up to 17,626 uniformed personnel was also authorized—with the same minimum police personnel between January 1, 2023, and March 31, 2023. Additionally, the Council requested the Union to ensure certain structures are in place, including those providing clear oversight of the African Union Transition Mission in Somalia, including clear command and control of the Mission and operational coordination between its contingents. 6 Internal Displacement Monitoring Centre: https://www.internal-displacement.org/countries/somalia. 7 Climate in Somalia is characterized by a bimodal annual rainfall pattern, which is created by the movement of the Intertropical Convergence Zone (ITZ) across the country from April to July. The northerly movement of the ITZ brings the major Gu rains. From September to November, the southerly movement of the ITZ results in the minor Deyr rains. The rainy seasons are separated by two dry spells, known locally as Jilaal (January–March) and Hagaa (July–September). 4 S om a l i a Eco n om i c Update Recent Economic Developments drought affected livestock health, thus limiting to the brink of starvation. According to the milk access and saleable animals among the Somalia Integrated Household Budget Survey poor and vulnerable pastoral households. (National Bureau of Statistics 2023), food Pastoral households accumulated high debt insecurity was a major concern for Somalis burdens, driven by the prohibitive costs of water households. Indeed, 44.3 percent of the total and feed for livestock, resulting in increased estimated households were moderately food reliance on purchasing food for the family on insecure, and 24.4 percent were severely food credit, and abnormal livestock migration to insecure. Similarly, over half of the households distant areas in search of pasture and water (52.2 percent) were unable to afford healthy (UN OCHA 2023). and nutritious food; 47.7 percent were worried that they would not have enough food to eat; The prolonged severe drought intensified a and 43.5 percent ate less than they thought humanitarian crisis in 2022. By the end of they should (Figure 1.2). This was compounded December 2022, 7.1 million people—nearly half by a high level of malnutrition, with over 1.3 of the population—were food insecure, and 1.3 million children having received treatment for million people were displaced (FEWS NET 2023). malnutrition between January and November Worsened food security and nutrition outcomes 2022. High food prices, increased conflict and pushed the poor and vulnerable communities insecurity, and disease outbreaks aggravated Figure 1.2: Food Insecurity is aggravated by recurring food insecurity and malnutrition. climatic shocks Food insecurity experience scale (% of individuals) Shocks are difficult to predict, but are the sources 62.9 of poverty and vulnerability Most Somali households were hit with multiple 43.7 44.3 and contemporaneous shocks in 2022. The 40.5 39.8 impact of a shock on household welfare is worse if there are other shocks as well. The 21.8 23 24.4 SIHBS identifies the shocks that affected households the previous 24 months (SNBS 2023). The three major shocks included higher food prices, drought and a loss of livestock. In Rural Urban Nomadic Total this context, 53 percent of total households Moderate/Severe Severe identified sharp increases in food prices as the Food insecurity experience 2019 2020 2021 Total Worried you would not have enough food to eat 48.2 44.3 63.3 47.7 Unable to eat healthy and nutritious food 52.1 47.7 73.7 52.2 Ate only a few kinds of food 48.7 44.2 66.8 48.3 Had to skip a meal 42.8 38.6 62.2 42.7 Ate less than you thought you should 41.6 40.3 62.3 43.5 Ran out of food 36.1 34.8 55.8 37.8 Hungry but did not eat 34 31.7 52.3 34.9 Went without eating for a whole day 24.8 24.2 45.6 27.1 Source: Somalia National Bureau of Statistics (2023). Note: Food security situation during the month preceding the survey. The Food Insecurity Experience Scale (FIES) is a methodology developed by the FAO to identify households facing difficulties in accessing food. Under this methodology, people experiencing moderate levels of food insecurity will typically eat low-quality diets. At times during the year, they might also have been forced to also reduce the quantity of food they would normally eat. Those experiencing severe levels would have gone for entire days without eating due to a lack of money or other resources to obtain food. November 2 0 2 3 | Edition No. 8 5 Recent Economic Developments major shock followed by the impact of drought Climatic shocks have had devastating at 47 percent, and livestock fatalities at 15 consequences to the economy. Amid poor percent (Figure 1.3). social safety nets and weak health systems, the poorest households will resort to unhealthy The poor households are more exposed coping mechanisms (including restricting to natural shocks, reflecting their location consumption). These shocks have also led to and dependence on agriculture as a source more internal displacement. Rising food and of living. As a result of these multiple and energy prices—fueled in part by the Russian compounding shocks, many rural and nomadic Federation’s invasion of Ukraine and climate households face widening food consumption shocks—have affected Somalia’s economy at gaps. Furthermore, the erosion of their a macro level. As such, they have dimmed its livelihoods limits their coping capacity. Thus, 51 efforts to reduce poverty as articulated in the percent of nomadic households reported the National Development Plan-9. At the household death of livestock as a shock as opposed to only level, high food price inflation can have 5 percent of urban households. The deleterious detrimental impacts on poorer households, effects of drought affected more nomads (87 who spend a larger share of their income on percent) as compared to 53 and 36 percent food in the short run. of households living in rural and urban areas, respectively (Figure 1.3). The contemporaneous The accumulated history of shocks is and multiple shocks have created a surge in increasingly associated with poverty. Climate population displacement from rural areas to change and armed conflict are among Somalia’s IDP settlements, mostly in urban areas. This defining challenges in tackling poverty. Natural has in turn led to the provision of sustained disasters have had a high and lasting impact on humanitarian food assistance required to the poor. The effects of these shocks have been prevent a crisis (Integrated Food Security Phase multi-dimensional including: the economic Classification [IPC] Phase 3/serious) or worse effects on wealth and income; social effects outcomes, as well as to protect livelihoods. (destroying trust and social capital within Figure 1.3: Food prices were the largest shock experienced villages); and impacts on health (death, illness), by Somali households among others. Idiosyncratic shocks are almost Shocks, percent of households always associated with income or wealth losses. 87 However, social shocks are less likely to cause income or wealth losses, but they clearly have a psychological and social impact. According 52 53 54 54 51 53 47 to the SIHBS (SNBS 2023), 45 percent of total 37 37 households suffered income loses because of 32 29 shocks; 11 percent suffered asset losses; and 33 20 19 15 percent suffered both losses. However, when 5 this is disaggregated in terms of locations, 54 Rural Urban Nomadic Total percent of nomads suffered income losses, Large rise in price for food Drought or severe water shortage and 46 percent suffered both loses of assets Livestock died Others and income. Both rural and urban populations Source: SIHBS (SNBS 2023). suffered little assets losses because of the shocks (Figure 1.4). 6 S om a l i a Eco n om i c Update Recent Economic Developments Figure 1.4: Contemporaneous shocks have led to loss of Figure 1.5: Coping mechanisms of households income and assets during shocks Percent of households Percent of households 53.7 Consumed lower cost but less preferred foods 47.2 45.6 44.8 Borrowed money from relatives 41.9 Reduced non-food expenditures 31.8 33.2 30.2 Received help from family/friends Reduced food consumption 16.8 Did nothing 11.8 10.9 9.3 Spent cash savings Prayer 0 10 20 30 40 50 Rural Urban Nomadic Total Percent Income loss Asset loss Loss of both Total Nomadic Urban Rural Source: SIHBS (SNBS 2023). Source: SIHBS (SNBS 2023). Households have responded differently to Inflationary pressures intensified in 2022, with the various shocks. Figure 1.5 shows the most consumer prices remaining persistently high common responses to the shocks adopted Consumer prices accelerated in the first half by affected households according to place of of 2022 due to both domestic and external residence. Most households (37 percent) resort factors. Commodity prices rose significantly to prayers when shocks hit them, whereas in 2022 due to the severe drought conditions, 16 percent do nothing. However, 21 percent as well as the impacts of Russia’s invasion of draw down their savings, 13 percent reduce Ukraine. The drought reduced the capacity consumption, and 9 percent seek help from of Somalis to grow and buy their own food, family and friends (Figure 1.5). In addition, 6 thereby increasing food insecurity. In addition, percent of the households reduce non-food the Ukraine-Russia crisis disrupted the global expenditures. According to the SIHBS (SNBS food markets and energy prices. Specifically, 2023), urban households responded relatively the global supply of oil, wheat, and fertilizer, more by spending cash savings (23.0 percent) among other commodities, was disrupted, as compared to 21.4 and 13.7 percent of causing global prices to skyrocket. Up to 90 rural and nomadic households, respectively. percent of the Somalia’s wheat imports come Rural households received more support from from Russia and Ukraine. The high oil prices international organizations (5.3 percent) as worsened the country’s oil import bill, which compared to 2.4 and 3.6 percent of urban more than doubled in 2022. As a result, prices and nomadic households, respectively. Finally, in Somalia were significantly elevated, with nomadic households were relatively more overall inflation averaging 6.8 percent up from prone to prayer (43.6 percent compared to 4.6 percent in 2021 in Mogadishu; 11.1 percent 41.7 and 33.6 percent of rural and urban in Puntland up from 2.2 percent; and 8.3 percent households, respectively); doing nothing (18.0 in Somaliland up from 3.7 the previous year percent compared to 15.3 and 15.2 percent (Figure 1.6a). Overall inflation was at its peak of rural and urban households, respectively); in July, that is, at 7.7 percent in Mogadishu, and selling livestock or poultry (11.2 percent and 12.6 and 11.0 percent in Puntland and compared to rural household rate of 4.0 Somaliland, respectively, in October 2022. percent (see Figure 1.5). Even though inflationary pressure has eased, commodity prices remain persistently high. November 2 0 2 3 | Edition No. 8 7 Recent Economic Developments Figure 1.6: Inflation was high in 2022, driven by high food and energy prices a. Overall inflation, percent b. Food inflation, percent 16 30 14 25 12 20 10 15 8 10 6 5 4 2 0 0 -5 Jan-21 Mar-21 May-21 Jul-21 Nov-21 Jan-22 Mar-22 May-22 Jul-22 Nov-22 Jan-23 Mar-23 May-22 Jul-22 Jan-21 Mar-21 May-21 Jul-21 Nov-21 Jan-22 Mar-22 May-22 Jul-22 Nov-22 Jan-23 Mar-23 May-22 Sep-21 Sep-22 Sep-21 Sep-22 Jul-22 Mogadishu Puntland Somaliland Mogadishu Puntland Somaliland Source: World Bank (2022b), Ministry of Planning Puntland, Ministry of Planning Somaliland. Figure 1.7: Fuel prices were at an all-time high in 2022 a. Petrol, US$/ltr b. Diesel, US$/ltr 1.6 1.6 1.4 1.4 1.2 1.0 1.2 0.8 1.0 0.6 0.8 0.4 0.6 0.2 0.0 0.4 Jan-21 Mar-21 May-21 Jul-21 Mar-22 May-22 Sep-21 Nov-21 Jan-22 Jul-22 Sep-22 Nov-22 Jan-23 Mar-23 Jan-21 Mar-21 May-21 Jul-21 Sep-21 Nov-21 Jan-22 Mar-22 May-22 Jul-22 Nov-22 Jan-23 Mar-23 Sep-22 Galgaduud Nugaal Sanaag Awdal Hiraan Nugaal Source: Food Security and Nutrition Analysis Unit (FSNAU) database (2023). The inflationary pressures increased and southern Somalia. However, during significantly despite the economy being de droughts, prices in the south tend to increase facto dollarized. Generally, the highly dollarized faster than in the north. nature of the economy can be a source of stability in times of low and stable global Reforms have stabilized the financial sector, but commodity prices. However, both overall and drought made banks risk averse food inflation remained significantly high and The financial system continues to be stronger stickier as compared to previous periods. There following reforms at the Central Bank of are also spatial differences in prices in Somalia. Somalia (CBS). The CBS continued its reform The prices of crops (grains in particular) tend to path, despite the exogenous shock buffeting be higher in Northern Somalia than in central the economy. Improved regulatory frameworks and southern Somalia (see figure 1.8). When have yielded positive results that are increasing drought occurs and is cushioned by food aid, the public’s confidence in the financial system, food prices in the north tend to decline as the while also supporting growth in credit to the supply of food from aid increases. For livestock, private sector. As of the end of April 2023, the prices of animals (and livestock products) there were 13 licensed commercial banks, 10 are cheaper in the north compared to central licensed Money Transfer Businesses (MTBs), 8 S om a l i a Eco n om i c Update Recent Economic Developments Figure 1.8: Local cereal price increased in 2022 a. Red sorghum, US$ /kg b. White sorghum, US$/Kg 1.6 1.2 1.4 1.0 1.2 0.8 1.0 0.8 0.6 0.6 0.4 0.4 0.2 0.2 0.0 0.0 Jan-23 Apr-23 Jan-22 Apr-22 Jul-22 Oct-22 Jan-23 Apr-23 Jan-21 Apr-21 Jul-21 Oct-21 Jan-22 Apr-22 Jul-22 Oct-22 Jan-21 Apr-21 Jul-21 Oct-21 Bakool Bari Bay Banaadir Bay Hiraan Source: Food Security and Nutrition Analysis Unit (FSNAU) database (2023). and four licensed Mobile Money Operators to support the ability of financial institutions to (MMOs) in the country. In addition, the CBS assess risks, and eventually increase access to approved licenses for two international banks finance. In addition, the country enacted the in 2022, signaling the improved confidence Targeted Financial Sanctions Law. Somalia will in the country’s banking system and further also be subjected to the Middle East and North enhancing opportunities for investment. The Africa Financial Action Task Force (MENA-FATF) Central Bank remains committed to fostering mutual evaluation, which will assess progress inclusive economic growth and building a in addressing money laundering and terrorism robust, stable, and sound financial system. financing concerns. Somalia is developing and implementing an Commercial banks in Somalia adopted the AML/CFT Action Plan based on the National International Bank Account Numbers (IBAN) Risk Assessment (NRA). The Somali authorities in 2022 to reduce for cross border transactions published a National Risk Assessment in May errors. This is an internationally agreed 2022 and subsequently a NRA Action Plan in system of identifying bank accounts across February 2023. These documents highlighted national borders. As such, it facilitates the gaps in the current systems related to AML/ communication and processing of cross-border CFT and included measures to address these transactions with a reduced risk of transcription risks. A key area of risk identified is the lack errors. The use of IBAN across all transactions of a verifiable source of identification, which going through the National Payment System constrains the development of know-your- (NPS) will help transform the financial sector, customer (KYC) protocols. Currently, the country as these are fast and secure payments both lacks an accepted form of identification, thus domestically and internationally. IBAN enhances limiting compliance with KYC requirements. performance in payment processing and However, in March 2023, progress was being reduces operational risks for bank transactions made as the country enacted the legislative by enabling the NPS to electronically validate framework for digital identification. The bank account numbers, as well as to choose enacted Digital Identification Law is expected the route a payment must take without manual to provide a basis for developing electronic KYC involvement. This will also help to restore the regulations by the end of 2023. This will help assurances of international correspondent The publication of the National Risk Assessment was supported by the first operation of this series. 8 November 2 0 2 3 | Edition No. 8 9 Recent Economic Developments banks, regulators, and investors about the credit of the banking system. Trade financing country’s reintegration into the international dominated financing assets and represented 25 financial markets. percent of private sector credit. Construction loans came second at 14 percent. Commercial Somali banks’ domestic assets continue to banks preferred loaning funds to sectors where increase. Domestic assets of commercial banks they could verify activity or take collateral, have more than tripled in the last 5 years, particularly in trade financing, construction, real from US$394 in 2018 to US$1.3 billion in 2022, estate, or enter joint ventures or partnerships equivalent to 15.4 percent of GDP (see Figure with prospective borrowers. However, this 1.9a). The asset growth averaged 35 percent per leaves a large unmet market demand for year during this period, which signals improved financing the real economy (World Bank Group confidence in the banking system. Domestic and UNIDO 2021). assets are dominated by cash on hand, which constituted 38 percent and stood at US$476 Households are locked out of borrowing by million. The provisions of financial resources to commercial banks, despite excess liquidity. the private sector constituted 32 percent and Banks reduced financial intermediation and stood at US$400 million in 2022 (Figure 1.9b). outreach efforts as default risk perceptions persisted and remained elevated since the Credit to the private sector increased despite COVID-19 crisis. They have maintained their the economic slowdown. It increased to risk-averse stance, only lending for short-term US$400 million in 2022, growing by 25 percent trade finance and for relatively large loans from the previous year. This represents 31.8 whose share in the total portfolio of banks percent of total domestic assets, up from 27 increased during the pandemic. To that extent, percent in 2021 (Figure 1.10a). Credit growth the share of personal/household loans has was driven by four subsectors: construction declined from 13 percent in 2019 to 8 percent loans (41 percent); trade financing (35 percent); in 2023. According to the Somalia Integrated real estate (25 percent); and investment in Household Budget Survey (SIHBS), 82.9 percent partnerships and joint ventures (11 percent of households prefer borrowing from a trader/ growth)—see figure 1.10b. The four subsectors merchant; 17.5 percent prefer borrowing from contributed more than 75 percent of the total a relative/friend/neighbor; and only 2 percent Figure 1.9: Increasing bank assets and liabilities a. Assets and liabilities, percent of GDP b. Percent of domestic assets 18 5% 6% 11% 10% 8% Balances with Central 16 11% 13% Bank & other 12% 15% 16% commercial banks 14 8% 7% 11% Fixed, intangible & 12 12% 8% other assets 27% 10 Percent 47% 28% 32% Investment in property 8 & real estate 40% 6 Provision of financial resources to the private 4 47% sector 38% 38% 29% 2 23% Cash on hand 0 2018 2019 2020 2021 2022 2018 2019 2020 2021 2022 Domestic assets Domestic liabilities Source: Central Bank of Somalia database (2023). This is consistent with results from the 2019 Enterprise Survey for Mogadishu and Bosaso, which showed that Somali businesses relied on internal sources of funding 9 for 92 percent of their working capital needs. Only 2 percent of the needs were met by banks (as compared the Sub-Saharan Africa average of 8 percent). The survey found that although 94 percent of the firms in Somalia had a bank account, only 4 percent had a bank loan or a line of credit. 10 S om a l i a Eco n om i c Update Recent Economic Developments Figure 1.10: Commercial banking assets grew in 2022 a. As a share of domestic assets b. Percentage growth 47% Total assets 19.8 40% Investment in property & real estate 60.0 38% 38% Investment in equities 10.6 32% (Partnership/Joint Venture) 28% 27% Real estate loans 24.6 23% Trade financing 35.1 Construction loans 41.0 Financing assets 31.7 Provision of financial resources to the 25.4 private sector Cash on hand Private sector credit Cash on hand -13.9 2019 2020 2021 2022 Source: Central Bank of Somalia database (2023). prefer borrowing from commercial banks US$635 million. However, commercial entities (Figure 1.11a). Furthermore, only 8.3 percent of contracted by 2 percent to US$462 million during households own a bank account, mainly those this period. The contraction in commercial located in urban areas (Figure 1.11b). entities’ deposits was because of an unwinding of their reserves built up during the pandemic. Domestic liabilities have steadily increased as Saving deposits increased 61 percent to US$66 confidence in the banking sector improved. million, representing 5 percent of commercial They increased to US$1.2 billion, equivalent bank liabilities in 2022. to 15.3 percent of GDP in 2022, a significant increase from 6.2 percent of GDP in 2018 Despite sluggish economic growth, the quality (Figure 1.9a). Customer deposits remain of commercial bank assets remained high. The the primary liabilities of commercial banks, total consolidated shareholder equity increased constituting 93 percent of domestic liabilities in by 20 percent in 2022 to reach US$1.5 billion, 2022. These deposits increased by 24 percent whereas the share capital increased by 13 to US$1.2 billion from US$942 million in 2021. percent to reach US$192 million (Table 1.1). The This was primarily driven by demand deposits quality of commercial bank assets remained of individuals, which increased by 51 percent to high and their level of credit risk low. The non- Figure 1.11: Intermediation role of commercial banks is still nascent a. Source of loan, percent of households b. Own bank account, percent of households 10.3 Trader/Merchant 82.9 Relative/Friend/Neighbor 17.5 8.3 7.7 Commercial bank 2 Employer 1.7 NGO 0.6 Hawala 0.6 2 Mobile phone platform 0.1 Total 26.8 Nomadic Rural Urban Total Source: SIHBS (Somalia National Bureau of Statistics 2023). November 2 0 2 3 | Edition No. 8 11 Recent Economic Developments performing loan (NPL) to gross loans ratio The external sector was weighed down by drought increased marginally to 1.5 percent in 2022, and global developments from 0.8 percent in 2021, thus signaling the The current account deficit remained invariant tight lending environment during drought, as as official grants helped finance the drought- well as higher interest rates and uncertainties induced food imports and higher commodity in the global economies. Nevertheless, banks imports. The current account stood at 16.8 are at a lower risk of loss if they do not recover percent of GDP in 2022, the same level as the the loan amounts owed. The commercial previous year. This was despite high global consolidated bank capital asset ratios have commodity prices, poor exports and a drought enough cushion to absorb a reasonable share which necessitated increased food imports, of losses before they become insolvent. The leading to a higher oil import bill. The trade capital asset ratio declined from 13.9 percent in balance deteriorated as export earnings 2021 to 12.8 percent in 2022, still sufficient to from livestock were insufficient to offset the be in accordance with Basel 2 recommendation significant increase in import bills due to high of 8 percent (Table 1.1). food and energy prices (Table 1.2). The trade deficit widened by 7.4 percentage points to Table 1.1: Banking sector performance in Somalia, 2020–22 Percentage change 2020 2021 2022 (year-on-year) Balance sheet Items (US$ millions) Cash on hand 299.6 552.7 476.1 -13.9 Credit to the private sector 219.0 318.9 399.7 25.4 Of which Financing assets 145.8 222.7 293.3 31.7 Investment in equities (partnerships, joint ventures) 73.8 96.2 106.4 10.6 Investment in property and real estate 60.8 85.9 138.2 60.9 Total assets 845.7 1221.2 1462.5 19.8 Customer deposits 667.2 941.8 1164.3 23.6 Total shareholder’s equity 133.4 196.1 215.1 9.7 Net profit after tax -2.9 4.0 -0.4 -110.0 Non-performing financial assets 5.8 2.7 6.1 125.9 Total capital 100.5 162.9 183.3 12.5 Total net assets 806.5 1168.4 1437.0 23.0 Ratios (percent) Non-performing assets/gross loans 2.6 0.8 1.5 Profit/equity -2.1 2.1 -0.2 Capital/assets 11.9 13.9 12.8 Loans/deposits 32.9 33.9 34.3 Source: Central Bank of Somalia 12 S om a l i a Eco n om i c Update Recent Economic Developments Table 1.2: Imports surged as COVID-19 restrictions eased Variables (as a percentage of GDP) 2020 2021 2022 Current account balance −14.9 −16.8 −16.8 Trade balance −67.4 −71.7 −79.1 Exports of goods and services 17.1 17.2 17.0 Imports of goods and services 84.5 88.9 96.2 Remittances 23.2 27.8 26.3 Official grants 30.6 27.8 36.6 Foreign direct investment 7.8 8.0 7.8 Source: Somalia Authorities and IMF (2023) 79.1 percent of GDP, up from 71.7 percent in driven by food imports which grew by 66 2021. Remittances and official grants, estimated percent; construction materials by 57 percent; at 63 percent of GDP, helped to finance the oil products more than doubled; and medical trade deficit. Because of the country’s weak products which grew by 106 percent. production base and tough investment climate, the external sector will remain vulnerable, Exports of live animals declined due to the partly because of deteriorating terms of trade. prolonged drought. Somalia’s exports are dominated by livestock, whose numbers Somalia’s import bill increased significantly and health are susceptible to the increased because of huge food imports driven by frequency of droughts, in turn affecting overall drought and high global commodity prices. A export earnings. Merchandise exports slumped significant drop in domestic production of food by 43 percent in 2022 to US$667 million from due to drought forced Somalia to increase its 1.2 billion in 2021, with livestock exports falling food imports. These accounted for more than by 34 percent to US$521 million from US$785 a 50 percent increase in total merchandise million (Figure 1.12b). The total number of imports in 2022. Somalia’s overall imports of live animals exported through Somalia’s ports merchandise goods increased by 32.4 percent declined by 2.2 percent in 2022. This was to US$6.3 billion, from US$4.8 billion in 2021 mainly driven by a 3.1 percent fall in live goats (Figure 1.12a). This significant increase was and sheep, the dominant category of the export Figure 1.12: Drought and global prices affected Somalia’s trade with its partners a. Merchandise imports b. Merchandise exports Food Livestock Others Construction Crops & vegetable oil Cars & spare parts Forest products Clothes & footwear Oil Animal skins products Medical product Electronics & electric machines Other 0 500 1000 1500 2000 2500 0 200 400 600 800 1000 Millions of US$ Millions of US$ 2022 2021 2020 2022 2021 2020 Source: Central Bank of Somalia. November 2 0 2 3 | Edition No. 8 13 Recent Economic Developments basket (Figure 1.13). Similarly, although only down of remittances. In this context, inflows to accounting for a small share, crop and vegetable individuals contracted to 0.5 percent and 6.6 oil exports contracted by 74 percent to US$45 percent in Q2 and Q3, respectively, due to these million from US$175 million the previous year. global developments. However, they recovered in Q4, growing by 7 percent as inflationary Remittance growth was sluggish in 2022, pressures eased in global markets. Total affected by tight global conditions; however, remittance inflows grew by 5.8 percent in Q1 they recovered in the fourth quarter. but slowed in Q2 and Q3 to 1.8 and 2.5 percent, Remittances support consumption and respectively, before recovering significantly in investment, as well as cushion households Q4 to 12.7 percent. in times of shocks. Remittances inflows have remained relatively resilient to the Public finances have improved markedly, but fiscal recurrent shocks that have buffeted the challenges remain country throughout 2010–22, including during Domestic revenue mobilization by the FGS the COVID-19 global pandemic. Growth in has recovered from the 2020–21 crises of the remittances was sluggish in 2022, reflecting COVID-19 global pandemic and a prolonged global economic conditions. Remittances electoral impasse. Revenue collection remained recorded a 4.2 percent growth rate compared steady despite the severe drought through to 19.1 percent in 2021, the lowest growth in 2022. Domestic resources were 14 percent the last 5 years (Figure 1.14). The slowdown was higher than for pre-COVID levels, surpassing attributed to tight global financial conditions as the annual target by 5 percent in 2022 (Table monetary policies tightened, and high inflation 1.3). Total donor grants more than tripled as rates experienced in the countries where most compared to 2021, owing to the resumption of the Somali diaspora resides. The growth of of budget support and increased project grants remittance inflows for individuals remained in response to the severe drought. Overall, invariant, growing at 0.5 percent to US$2.1 domestic revenues increased by 0.2 percentage billion. On a quarterly basis, remittance inflows points to reach 3.2 percent of GDP. Donor to individuals grew by 9.4 percent as measured grants increased by 3.6 percentage points to by quarter-on-quarter growth in Q1. However, 5.6 percent of GDP, pushing total revenues to the tightening of monetary policy to combat 8.9 percent of GDP. high inflation in western economies led to slow Figure 1.13: Live animals exports have not recovered since Figure 1.14: Growth in remittances slowed in 2022 the 2016/17 drought 6 1,000 900 5 800 700 4 Millions of heads US$ Millions 600 3 500 400 2 300 1 200 100 0 0 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Q1 Q2 Q3 Q4 Sheep/Goats Total (All animals) 2019 2020 2021 2022 Source: Food Security and Nutrition Analysis Unit (FSNAU) database Source: Central Bank of Somalia (2023). (2023). 14 S om a l i a Eco n om i c Update Recent Economic Developments FGS expenditure priorities are shifting toward in 2022, leaving a large share of the budget social programs; however, capital spending to be financed by external grants, as well as remains small. Total expenditures grew in ad hoc rationalization of expenditures in line tandem with revenue growth to reach 9 with available resources. Importantly, the percent of GDP in 2022, from 6.2 percent government is constrained in financing its wage in 2021. This increase was driven by social bill, which has remained the largest spending spending accounting for 27 percent, becoming category—and growing faster than tax the largest share of the total FGS sector revenues (Figure 1.15). Therefore, to improve spending. In addition, intergovernmental grants fiscal sustainability and maintain prudent fiscal more than doubled during this period. These policy, the government will need to fast-track expenditure increases were all in response to the numerous efforts underway to increase the prolonged drought conditions. Importantly, domestic revenues. At the same time, it will the response to recurrent shocks and pro-poor need to constrain its wage bill and reliance on spending in Somalia is virtually dependent on external donor funds. external grants, as the government has neither the fiscal space nor the capacity to borrow to Similarly, budget planning and utilization finance deficit spending. Capital spending has remain a challenge bringing to question remained small over the years, accounting for FGS’ budget credibility. There are significant only 2 percent of the total spending in 2022, variances between actual outturns and original equivalent to 0.2 percent of GDP. budgets, with an increasing percentage of adjustments to the original budget in the last The fiscal situation remains challenging, five years. Each year the FGS Parliament has as domestic resources remain too low and had to pass a supplementary Appropriation insufficient to meet increasing expenditure Act. Domestic revenue forecasts have generally needs. Although domestic revenue mobilization remained accurate and surpassed targets during has improved over time, it remains low, with a this period, except in 2021 during the prolonged tax-to-GDP ratio averaging only 2 percent of electoral impasse. However, forecasting for GDP in the last 5 years. Public expenditures donor grants, which constitute a large share of are growing faster than revenue growth. The the budget, needs improvement. The realization total FGS domestic revenues could only finance of donor commitments ranged from 75 percent just over one-third of the total expenditures in 2018 to 66 percent in 2022. As a result, total Figure 1.15: FGS tax revenues are too low to finance the FGS wage bill 300 250 200 Percent 150 100 50 0 8 9 0 1 2 8 9 0 1 2 8 19 0 1 22 8 9 0 1 2 3 23 3 r-1 r-1 -2 -2 -2 t-1 t-1 t-2 -2 t-2 -1 -2 -2 l-1 -1 -2 -2 l-2 r-2 -2 n- n- n- r r r t n n n l l l Ap Ap Oc Oc Ap Oc Ap Oc Ap Oc l Ju Ju Ju Ju Ju Ap Ja Ja Ja Ja Ja Ju Ja Wage bill/tax revenue Avg for FY Linear (wage bill/tax revenue) Source: Staff computations based on data from the FGS Ministry of Finance. November 2 0 2 3 | Edition No. 8 15 Recent Economic Developments revenue outturn deviations from the original 5 percent to reach US$262.7 million, which is budgets have ranged from 7 percent in 2018 equivalent to 3.2 percent of GDP. This growth to 24 percent in 2022 (Table 1.3). was driven by increases across all domestic revenue sources, except other taxes which Domestic revenue collection surpassed the annual declined by 3.4 percent compared to 2021. target in 2022, and the resumption of budget Trade taxes and non-tax revenues remain the support eased liquidity pressures main drivers of domestic resources, accounting FGS domestic revenue collection increased for 44 percent and 31 percent of total domestic by 14.4 percent in 2022 due to the continued revenues, respectively, in 2022 (Figure 1.16b). recovery from the COVID-19 crisis and the Growth in trade taxes grew were mainly driven conclusion of the prolonged electoral period by revenue increases from petroleum products (Table 1.3). Actual revenue collection surpassed at 17 percent; food (mainly flour, rice, and the annual budget target of US$250 million by spaghetti) at 26 percent; and the importation Table 1.3: FGS fiscal operations, 2019–2023 (US$ millions) 2019 2020 2021 2022 2023 2022 2022 Approved Actual vs Actual Actual Actual Budget Actual Budget vs 2021 Budgeted Revenue and grants 337.8 506.8 376.5 944.9 721.9 950.7 92% -24% Domestic revenues 229.7 211.2 229.6 250.1 262.7 283.3 14% 5% Tax revenues 154.7 139.5 162.8 173.7 181.7 189.9 12% 5% Taxes on income, profits, property 11.7 16.2 15.8 15.8 18.7 18.6 18% 18% Taxes on goods and services 25.0 21.3 23.4 30.8 32.8 33.1 40% 7% Taxes on international trade 107.0 91.1 109.0 111.3 116.2 123.2 7% 4% o/w import tax on khat 16.6 5.5 11.6 16.0 13.7 20.0 18% -14% Other taxes 11.1 11.0 14.6 15.9 14.1 14.9 -3% -11% Non-tax revenues 74.9 71.7 66.8 76.4 81.0 93.4 21% 6% o/w telecoms spectrum fees 8.7 1.7 1.2 13.1 4.1 6.0 256% -69% Grants 108.1 295.6 147.0 694.8 459.2 667.4 212% -34% Budget support 65.5 123.1 2.5 174.6 145.5 170.6 5722% -17% Budget support 42.6 172.5 144.5 520.2 313.7 496.8 117% -40% Expenditure 315.7 482.2 460.1 919.5 719.5 977.2 56% -22% Compensation of employees 162.8 227.0 250.1 266.0 259.6 287.5 4% -2% Use of goods and services 92.7 80.3 106.1 232.2 140.7 226.4 33% -39% Interest and other charges - 1.8 0.9 2.5 0.8 5.8 -11% -68% Grants (intergovernmental) 45.0 90.2 45.9 132.4 111.2 190.5 143% -16% Social benefits - 62.1 39.9 247.3 188.9 201.3 374% -24% Other expenses 0.4 2.2 1.3 5.6 5.1 11.5 302% -8% Capital 14.8 18.6 16.1 33.5 13.2 54.2 -18% -61% Budget balance 22.1 24.6 -83.6 25.4 2.4 -26.6 Amortization 0.0 12.7 13.7 10.4 11.9 14.2 Memo: Nominal GDP (US$ millions) 6,485 6,883 7,628 8,158 8,158 8,738 Source: FGS Ministry of Finance (2019–2023). 16 S om a l i a Eco n om i c Update Recent Economic Developments Figure 1.16: Domestic revenue performance improving, but still too low to finance increasing expenditures a. FGS total revenue sources, percent of GDP b. Domestic revenue drivers, shares 10.0 100 9.0 8.0 80 7.0 Percent 6.0 60 5.0 4.0 40 3.0 2.0 20 1.0 - 0 2019 2020 2021 2022 2019 2020 2021 2022 Grants-budget support Grants-projects Income & Corporate tax Other taxes Taxes on goods & services Non-Tax Revenue Tax Revenue Non-Tax Revenue Trade taxes Source: FGS Ministry of Finance (2022). of khat at 18 percent. Although revenues from These grants eased liquidity pressures and khat continue to rise, they are 17 percent lower enabled the budget to close with a small fiscal compared to the pre-COVID level. Non-tax deficit of 0.1 percent of GDP. Projects grants revenues grew by 21 percent during this period more than doubled in 2022 to reach US$314 due to revenue increases from visa charges million compared to 2021. Indeed, they were and passports at 40 percent; overflight fees 82 percent higher than their highest level in at 34 percent; and harbor fees at 15 percent. 2020 during the onset of the pandemic. Growth Similarly, revenues from telecommunications in project grants was driven by the response to spectrum fees more than doubled; however, the severe drought mainly through the crisis they were only 50 percent of the pre-COVID response projects and the national social safety levels. 2022 growth in taxes on goods and net program (Baxnaano). With increasing services, the third largest revenue stream, was donor grants, disbursements are improving, from signature bonus revenues paid in relation albeit slowly; with two-thirds of the total donor to oil exploration, as well as an increase in commitments being realized in 2022. sales tax from airline tickets. Though small, income taxes increased by 18 percent during Public expenditures continue to rise, dominated by this period. personnel costs whereas social spending is largely financed by grants Donor grants more than tripled in 2022 The total expenditures of the FGS reached with the resumption of budget support and US$731.4 million in 2022, equivalent to increased project grants (Figure 1.16a). Total 9 percent of GDP (Table 1.3). This was 2.8 donor resources increased by 3.6 percentage percentage points higher than in 2021, points to reach 5.6 percent of GDP from 2 representing 79 percent of the approved percent in 2021. Budget support grants, which budget. Expenditures are dominated by the virtually disappeared in 2021 following a wage bill and the use of goods and services 15-month prolonged electoral period, resumed as the country continues to establish basic in the second half of 2022. These grants were functions needed for stabilization and state- mainly from the World Bank and the European building (Figure 1.17a). These expenditures are Union. Bilateral commitments from Türkiye and allocated mainly to administrative and security the United Arab Emirates were also realized. costs. The wage bill still accounts for the lion’s November 2 0 2 3 | Edition No. 8 17 Recent Economic Developments share of total spending, despite declining in to account for 2.8 percent of total spending share and increasing only marginally in recent in 2022. Expenditures in the health sector years. It increased by 3.8 percent in 2022, declined 3 percentage points to account for 1.6 reaching 3.2 percent of GDP and accounting percent of total spending, with only 19 percent for 35 percent of the total expenditures of the annual sector budget being executed. (Figure 1.17a). The use of goods and services Spending in the economic sector increased by increased by 33 percent to 1.7 percent of GDP, almost two-thirds to account for 7.8 percent representing 19 percent of total expenditures. of total spending during this period. However, The government increased spending on social project grants boosted investments in road benefits and intergovernmental grants in 2022 infrastructure, urban development, and water as the country battled with severe drought and services. Nevertheless, the provision of security high commodity prices during the recovery from and administrative services remains the core the COVID-19 crisis. Social benefits increased priority of the FGS (Figure 1.17b). Though over four times to account for 26 percent of the declining in share, the administration and total spending, up from only 8 percent in 2021 security sectors still dominate total spending; and 13 percent at the height of the COVID-19 both accounted for 50 percent in 2022. crisis in 2020. Similarly, intergovernmental grants to subnational governments more than Fiscal performance at the sub-national level doubled from the previous year, accounting improved, with higher intergovernmental grants for 15.2 percent of expenditures in 2022 supporting fiscal operations (Figure 1.17a). Domestic revenue collection increased across all FMS in 2022, albeit from a small base (Figure The government is increasing resources for 1.18a). Like the FGS, trade taxes dominate social and economic programs (Figure 1.17b). domestic revenues in the FMS, particularly Social expenditures accounted for 27 percent among those with ports, including Puntland of total spending in 2022, up from 17 percent (PSS) and Jubaland (JSS). However, the FMS in 2021. Cash transfers under the Baxnaano without ports remain at a disadvantage and social safety program accounted for most mainly rely on grants to finance their operations. of the social sector spending, at 83 percent, Taxes on goods and services, the second representing 23 percent of total FGS spending. revenue driver, increased across all FMS though Expenditures on education increased slightly they constituted only a small share of revenues Figure 1.17: FGS spending is shifting towards social programs and intergovernmental grants a. FGS spending, % of total expenditures b. Spending by sector, % of total spending 100 45 80 35 60 Percent Percent 40 25 20 15 0 2019 2020 2021 2022 Compensation of employees Goods & services 5 2019 2020 2021 2022 Grants Capital Social Benefits Interest Administration Security Transfers Social Economic Source: Staff computations based on FGS Ministry of Finance and IMF/World Bank data 2022. 18 S om a l i a Eco n om i c Update Recent Economic Developments mobilized in states without ports. The increase grants estimated to increase by 32 percent in domestic revenues ranged from 2 percent in compared to the 2022 outturn (Table 1.3). PSS, 9 percent in JSS, 13 percent in Galmudug, Domestic revenues are expected to only increase to 24 percent in the South West State. Grants by 8 percent to US$283 million, whereas more than doubled in all the states in 2022 donor grants will increase by 45 percent to as compared to 2021, thereby easing budget US$667 million. Donor grants are expected to implementation challenges as the country finance the largest share of the budget at 70 contended with multiple shocks. Strengthening percent, increasing by 2 percentage points to the framework for fiscal federalism by enhancing7.6 percent of GDP. Projects grants will drive the dialogue between the FGS and the FMS overall grants, growing by 58 percent. These remains key to supporting revenue mobilization mainly consist of World Bank projects. Budget efforts and implementing some of the interim support is expected to increase by 17 percent. agreements already reached, particularly those Total revenues are estimated to be 2 percentage concerning the sharing of resources. points higher compared to the previous year, that is, from 8.8 percent of GDP to 10.9 percent Almost all spending is for the wage bill and in 2023 (Table 1.3). the procurement of goods and services (Figure 1.18b). Capital spending is very small, mainly Domestic revenues are estimated to reach for buildings and equipment. Increases in 3.2 percent of GDP in 2023, financing only expenditures across the states were driven by 30 percent of the budget. Revenue growth revenue growth, with the PSS recording the is expected across all streams, with non-tax highest expenditures at US$111 million, almost revenues estimated to record the highest double the pre-COVID level. Total spending was growth of 15 percent. It is driven by increases back to the pre-COVID level of US$38.4 million in overflight and harbor fees, as the rebound in JSS, and it more than doubled across all the from the COVID-19 crisis continues. In addition, other states during this period. telecommunication spectrum fees increased as efforts to improve collection continue (Table FGS 2023 budget: Approved expenditure greatly 1.3). Trade taxes are expected to continue an exceed domestic revenue upward trajectory, increasing by 6 percent The Parliament approved the 2023 FGS budget compared to the 2021 outturn. Taxes on goods of US$950.7 million, with total revenues and and services are expected to remain unchanged. Figure 1.18: Revenue and expenditure performance across the FMS a. Total revenue, US$ Millions b. Expenditure by category, US$ Millions 120 120 100 100 80 80 60 60 40 40 20 20 0 0 2021 2022 2021 2022 2021 2022 2021 2022 2021 2022 2021 2022 2021 2022 2021 2022 2021 2022 2021 2022 PSS JSS SWS GSS HSS PSS JSS SWS GSS HSS Wages & salaries Goods & services Other expenses Domestic revenue Grants Social benefits Capital Source: Staff computations based on FMS and Ministries of Finance data. Note: GSS=Galmudug State of Somalia; HSS=Hirshabelle State of Somalia; JSS=Jubaland State of Somalia; PSS= Puntland; SWS=South West State of Somalia. November 2 0 2 3 | Edition No. 8 19 Recent Economic Developments The FGS is set to implement several revenue The budget proposes to sustain increased pro- measures to improve tax collection and poor spending in social protection, health, administration in 2023. These include: (i) and education, mainly through donor-funded increasing sales tax collection through the programs. Health spending is estimated to installation of electronic point of sale (POS) increase over 7 times to US$83.6 million machines at major business premises; (ii) compared to the 2022 outturn, with about 80 introducing tax clearance certificates to percent of the health budget targeted to be increase corporate income tax collection, spent at the FMS level. Education expenditures mainly from large businesses; and (iii) enforcing are expected to more double, with three- revenue collection from highly profitable quarters of the expenditures going to teacher firms, particularly in the telecommunications wages and school infrastructure. The Baxnaano industry. Similarly, the FGS envisages pursuing, program and the crisis response projects will on a pilot basis, a withholding tax arrangement drive increased spending on social protection. that will enable its suppliers and contractors to pay their corporate income tax in advance. Economic sector spending will more than The FGS will also introduce excise taxes on triple in 2023, accounting for 18 percent of the various items related to the information and total budget. This will be driven by increased communication technologies (ICT) sector, spending spread across the water, energy, urban including internet data and outbound cross- development, and road infrastructure sectors. border money transfers. Finally, the FGS will Donor projects are increasingly playing a streamline the issuance of exemptions to critical role in enhancing public service delivery eliminate discretionary exemptions. and strengthening government institutions. Nevertheless, administration and security Total FGS expenditures are estimated to sectors still dominate expenditures, accounting increase by 2.2 percentage points to 11.2 for half of the total budget. The administration percent of GDP in 2023, amounting to US$977 sector is set to increase by 30 percent and million (Table 1.3). Intergovernmental grants security by 16 percent in 2023. Therefore, are projected to record the highest increase collecting sufficient revenues to cover the wage of 71 percent, amounting to US$190 million bill, rising security costs, as well as human and compared to 2022. This represents 19 percent physical capital, will remain pressing priorities of the total budget. Donor-funded health for the government. activities are driving the increase in transfers to the FMS. Similarly, the procurement of goods Fiscal challenges will continue in 2023 as rapid and services will increase by 61 percent during expenditure growth surpasses available resources this period. The wage bill remains the highest The FGS projects a shortfall of US$26.6 expenditure driver It’s estimated to increase million in 2023 that would be financed by by 10.8 percent, accounting for 29 percent accumulated savings. As of end-July, the FGS of total FGS spending. Social benefits to the had already run up a cumulative deficit of poor and vulnerable households, mainly under US$35.1 million, almost double compared the national cash transfer program, are set to to a similar period in 2022, as increasing increase by 6.5 percent. Expenditures through expenditures outstripped available resources donor projects are expected to boost capital (Figure 1.19). Domestic revenue collection has spending, which is estimated to be more than improved markedly in the first seven months of four times the 2022 outturn accounting for 6 2023, surpassing the annual budget target by percent of the total budget, compared to 1.8 an estimated US$7.7 million, assuming a pro- percent in 2022. rated monthly average. However, the budget 20 S om a l i a Eco n om i c Update Recent Economic Developments Figure 1.19: FGS fiscal challenges to continue in 2023 efforts, as well as constraining expenditure Cumulative budget deficit, 2022 vs 2023 increases—particularly wages, is crucial for fiscal sustainability going forward. Millions of US$ -5 -15 Domestic resources increased by 32.2 YTD deficit is almost $20 -25 percent in the first seven months of 2023 as million deeper compared to the same period in 2022 (Table than targeted for Jan-July and -35 1.4). Trade taxes drove the strong performance, has consumed the fiscal space -45 with monthly collections averaging US$12 for the full year million, up from US$9 million in 2022. Non- -55 Jan Feb Mar Apr May Jun Jul tax revenues grew by 30 percent during this 2022 2023 period, with overflight, harbor, and visa and 2023 Budget (Jan-Jul.) 2023 Approved Budget (full year) passport fees driving performance. Collections Source: Staff computations based on FGS Ministry of Finance data (2023). Note: YTD=year to date. from the telecommunications spectrum fees were less than 50 percent the annual target is comprised of a large share of donor grants, of US$6 million. Donor disbursements remain amounting to 70 percent, mainly for projects. As slow, with only about 12 percent being realized such, it will have no impact on the fiscal deficit. during this period. In this regard, revamping revenue mobilization Table 1.4: FGS revenue and expenditure outturn, January to July 2022–23 2022 (Jan-July) 2023 (Jan-July) Percentage change Item (millions of US$) (millions of US$) (Year-on-year) Total revenue and grants 285.4 250.7 -12.2% Domestic revenue 130.8 172.9 32.2% Tax revenue 91.1 121.1 33.0% Income and corporate taxes 9.5 12.5 32.2% Taxes on goods & services 13.6 20.9 53.5% Trade taxes 60.4 83.5 38.2% Other taxes 7.6 4.2 -44.2% Nontax revenue 39.7 51.8 30.5% Grants 154.6 77.7 -49.7% Total expenditure 298.6 285.8 -4.3% Recurrent 293.8 281.9 -4.0% Compensation of employees 142.9 162.1 13.4% Use of goods and services 56.9 60.4 6.3% Interest and other charges 6.7 8.2 22.8% Intergovernmental grants 41.4 39.0 -5.8% Social benefits 44.8 11.5 -74.4% Other expenses 1.2 0.8 -32.5% Capital 4.8 3.9 -20.1% Source: FGS Ministry of Finance, July 2023. November 2 0 2 3 | Edition No. 8 21 Recent Economic Developments FGS expenditure was 4 percent lower macroeconomic stability, it has increased in January to July 2023 compared to a sending on poverty reduction, and it has similar period in 2022, as total revenue been implementing the NDP-9, which serves underperformed by 12 percent (Table 1.4). as Somalia’s poverty reduction strategy. As of Actual expenditures reached 31 percent of October 2023, almost all HIPC Completion Point the total approved budget, with close to 80 triggers have been achieved (see Table 1.5). percent of the spending going to the wage bill and the procurement of goods and services. The HIPC Initiative will enable Somalia to Wages and salaries accounted for 57 percent, eliminate a debt burden that has plagued and goods and services for 21 percent. the country for over three decades. Upon Intergovernmental transfers were 5.8 percent reaching the HIPC Completion Point, the lower compared to a similar period in 2022. country will qualify for full and irrevocable The government continues its commitment to debt relief. Somalia’s debt stock is expected debt service, with payments reaching US$8.2 to fall to 6.6 percent of GDP at the end of million during this period. 2023 from to 40 percent of GDP in 2022. In a post-HIPC environment, the FGS would have Debt Relief: Progress towards HIPC Completion expanded opportunities to finance investments Point and post-HIPC Environment in development priorities and expand basic Somalia expects to reach the HIPC Completion service delivery. Nevertheless, and ensuring Point by the end of 2023. The FGS has that debt levels remain sustainable. maintained its track record of maintaining Table 1.5: FGS has achieved almost all HIPC completion point triggers HIPC Completion Point Triggers Progress Poverty reduction strategy implementation 1. Satisfactory implementation for at Done least one year of Somalia’s full poverty The Annual Progress Report (APR) evaluating the implementation of the National reduction strategy, as evidenced Development Plan in 2020 was completed in June 2022. World Bank and IMF staff by an Annual Progress Report on produced the Joint Staff Assessment Note (JSAN) that reviews the APR in July 2023. the implementation of the poverty NDP9 costing to be included in the 2024 Budget. reduction strategy submitted by the government to IDA and the IMF. Macroeconomic stability 2. Maintain macroeconomic stability Done as evidenced by the satisfactory The fifth review of the ECF-supported program was completed on May 17, 2023. The implementation of the IMF-supported sixth review and final review will be considered for approval by the IMF Executive program. Board on December 13, 2023. Public financial and expenditure management 3. Publish at least two years of the Done audited financial accounts of the FGS. The Office of the Auditor General published the 2019, 2020, and 2021 FGS financial accounts. 4. Issue regulations to implement the Done Public Financial Management Act’s The PFM regulations—including chapters on debt, public investments, and natural provisions on debt, public investment, resource revenue management—were approved by the Cabinet in May 2022. and natural resource revenue management. 22 S om a l i a Eco n om i c Update Recent Economic Developments HIPC Completion Point Triggers Progress Domestic revenue mobilization 5. Adopt and apply a single import Not completed but satisfactory progress has been made. duty tariff schedule at all ports in the The customs regulations on valuation and declarations were issued in September Federal Republic of Somalia (to also 2022 and the ad valorem tariff schedule was enacted in June 2022. The Customs foster greater trade integration). Automated System (CAS) system has been implemented at Mogadishu and Kismayo ports of entry (seaports and airports)—including harmonized tariffs, harmonized HS codes, and harmonized item descriptions—but a common valuation table is yet to be applied. The reform has been paused in Bosaso and Garowe in the Federal Member State of Puntland due to political conditions. Governance, anticorruption, and natural resource management 6. Enact the Extractive Industry Income Done Tax (EIIT) Law. The Extractive Industries Fiscal Regime Law was enacted in June 2023. 7. Ratify the ‘United Nations Convention Done Against Corruption’ (UNCAC). Somalia acceded to the UNCAC in August 2021. Debt management 8. Publish at least four consecutive Done quarterly reports. Quarterly debt bulletins have been published since 2020Q4 with information on the outstanding stock and composition of debt liabilities and financial assets, and, where they exist, loan guarantees and other contingent liabilities, including their currency denomination, maturity, and interest rate structure. Social sectors 9. Establish a national unified social Done registry (USR) as a functional platform The authorities have established a USR with support from the World Bank, the World that supports registration and Food Program (WFP), and UNICEF. The USR platform/MIS has been developed and is determination of potential eligibility ready to receive data and support the functions of registration and determination of for social programs. eligibility. The core team dedicated to managing the operations of the USR has been established at the Ministry of Labor and Social Affairs. The Data Protection Law was approved by Parliament in March 2023. 10. FGS and FMS Ministers of Education Done (MOE) adopt an agreement On July 14, 2021, the FGS and FMS MoEs finalized and officially signed the revised defining their respective roles and draft education cooperation MoU at the intergovernmental meeting held in Garowe. responsibilities on curriculum and A permanent intergovernmental forum for education has been formalized. Key examinations. agreements reached include the formation of national examination, certification, and curriculum boards. An interim committee to develop the board members’ selection criteria was also established. 11. FGS and FMS Ministers of Health Done adopt a joint national health sector The Somalia Health Sector Strategic Plan for 2022-2026 was finalized. FGS and FMS strategy. ministers have agreed on a framework for a joint national health strategy. Growth/Structural 12. Enact the Electricity Act and issue Done supporting regulations to facilitate The Somalia Electricity Bill was enacted on March 8, 2023. Regulations are under private sector investment in the preparation. energy sector. 13. Issue Company Act implementing Done regulations on minority shareholder The regulations of the Company Act were issued in January 2021. A second set of protection to encourage private Regulations to the Company Act were issued in May 2022 specifically covering the sector investment. issue of minority shareholder protection. Statistical capacity 14. Publish at least two editions of the Done Somalia Annual Fact Book. The Annual Somalia Facts and Figures have been published, for 2018, 2019, 2020, and 2021. Source: IMF, and World Bank, 2023. November 2 0 2 3 | Edition No. 8 23 Recent Economic Developments But must take important steps to avoid falling • Continue refraining from non-concessional back into debt distress in the future. The external borrowing for the first five years authorities will need to continue strengthening after the HIPC Completion Point. Giving macroeconomic institutions. To keep budget priority to concessional financing sources deficits manageable, limiting the growth in the during this period will allow the country to wage bill and significantly increasing inland tax continue domestic reforms to boost growth, revenues are essential. And strengthening the strengthen public finances, and raise FGS’ public debt management framework is more domestic revenues to ensure debt also critically needed. Specifically, the FGS can: sustainability. • Reduce compensation of employees to a level where it can be financed by tax 1.3 Medium-Term Outlook and Risks: revenues. The FGS tax revenues only Prospects for Recovery averaged 2.2 percent of GDP in the last five The World Bank projects that the economy years, 2018–22. In 2018–19, the wage bill will record a modest growth of 2.8 percent in averaged 104 percent of tax revenues. This 2023 in the baseline scenario. The economy has since increased to 140–160 percent in is projected to pick up over the medium-term, the period 2020-22. with growth expected to increase gradually • Increase inland tax revenues by 25 percent to 3.7 percent and 3.9 percent in 2024 and per year on average by 2029, that is, by the 2025, respectively, as economic activities end of the NDP-10.10 Although inland taxes gain momentum (Figure 1.20). The projected have almost doubled in the last five years, growth in 2023 has been revised downward they are just a small share, averaging only by 0.8 percentage point compared to the 2022 Somalia Economic Update forecast. The US$51 million in 2018–22. This is equivalent revision reflects several short-term headwinds, to 0.7 percent of GDP. An annual increase of including the slowdown in the global economy, 25 percent will double the collection in just elevated levels of inflation, the lingering effects three years, reaching US$130 million in 2026, of drought, continued supply disruptions, and which will be an estimated US$15 million the war in Ukraine. higher than the 2022 outturn from customs. Figure 1.20: The economy is set to recover after severe This growth will not only boost sustainability shocks in 2022 in running government operations, but also 6.0 reduce the governments’ overreliance on 5.0 customs revenues. Real GDP growth (percent) 4.0 3.7 3.9 • Institutionalize debt and fiscal risk 3.3 2.9 management by bringing the DMU into 3.0 2.8 the civil service, incorporating debt into 2.0 2.1 1.7 the regular cash management systems of 1.0 the Ministry of Finance, and assessing and 0.0 limiting fiscal risks from all PPPs, while -0.3 -1.0 continuing to expand debt transparency. 2018 2019 2020 2021 2022e 2023f 2024f 2025f Baseline Upside Downside Source: Somalia Authorities and World Bank staff forecasts. Inland tax revenues are comprised of taxes on goods and services, incomes and corporate taxes, and other taxes, mainly stamp duties and road taxes. 10 24 S om a l i a Eco n om i c Update Recent Economic Developments The baseline scenario assumes a modest performance in the agricultural sector due to recovery as climatic conditions improve, improved weather conditions and stronger global commodity prices continue to ease, exports of livestock will push consumption to and investor confidence increases. Declining grow at a faster rate. With this recovery, per global commodity prices will have a stronger capita private consumption is projected for positive effect on the economy by boosting muted growth in 2023. However, it is expected economic activity. On the domestic front, it to increase to positive territory over the is assumed that average rains (Gu and Dyer) medium term. Improved Gu and Dyer rains in will lead to gradual recovery of agricultural 2023 are leading to a recovery of agricultural production, including a modest recovery of productivity, improved household incomes exports, particularly in the second half of and food security, as well as increased exports 2023. Continued humanitarian and social in 2024 and 2025. Government consumption protection support will cushion households continues to contribute negligibly to real against the lingering drought effects. It also GDP growth in 2023. After the government assumes investor confidence will be buoyed rationalizes its consumption upon reaching by the new government’s plans to stabilize the HIPC Completion Point as terms of new public finances, and the country’s anticipation financing moves to concessionary terms. to reach HIPC Completion Point by end of the 2023, thereby increasing the risk appetite for Inflation is projected to ease in 2023 and investors. Economic reforms and increased stabilize over the medium-term. In 2023, public investment should attract FDI and inflation is projected to be 3.8 percent, as global encourage increased, broad-based private commodity prices continue to ease. Similarly, sector activity, which will gradually boost theimprovements in the Ukraine- Russia crisis low domestic productive capacity. Over the can support the further easing of the global medium term, peace dividends and unlocked commodity prices. With expected average concessional borrowing after debt relief will Gu and Dyer rains, local prices are projected boost output growth. to decline to their historical levels, which will support a recovery in agricultural production. Private consumption will continue to be the The de facto dollarization will provide relative main driver of growth, despite being reduced price stability, as global economies stabilize and real incomes. Higher global prices and drought given Somalia’s dependence on imports. reduced real incomes and consumption of Somalis. Private consumption is projected Private investment is expected to pick-up in to be subdued in 2023, easing slightly to 3.7 2023 and over the medium term. Spending percent in 2023 from 4.0 percent in 2022. is projected to pick up with planned projects However, it will recover to grow at an average in the energy, port, and financial sectors. This of 4.5 percent in 2023 and 2024. The lower promises to gradually reinvigorate the economy consumption expenditures in 2023 reflect the as benefits from reaching the HIPC Completion effects of cost-of-living increases, which are Point in 2023 start to emerge. In the meantime, expected to temper the growth of real incomes the security operations to weed out Al-Shabaab and domestic demand due to the lingering in Somalia will also buoy investments. Economic effects of drought and insecurity. In 2024–25, reforms and increased public investment improvements in climatic conditions, reaching should attract FDI and encourage increased, the HPIC Completion Point, and stronger broad-based private sector activity. This will November 2 0 2 3 | Edition No. 8 25 Recent Economic Developments gradually boost the low domestic productive conditions will reduce remittances to and FDI capacity. Real investment growth is expected to in Somalia. Economic pressures or changing reach 4.1 percent in 2023 from 0.8 percent in political priorities in donor countries could 2022, and then growth faster to an average of reduce the supply of official development 5.5 percent in 2024-25. assistance to Somalia. The external sector is projected to improve in Weather-related shocks add more risks to 2023 and over the medium term. An easing the outlook. Weather volatility is a perennial of supply bottlenecks and declining global source of uncertainty for Somalia’s growth commodity prices will boost demand and prospects. Drought and floods continue to reduce the import bill. Climatic conditions are have a stranglehold on economic activity expected to improve with a gradual recovery of in Somalia, aggravating the humanitarian agricultural activities, which will boost export situation. Somalia has just experienced 5 earnings. Higher growth in remittances will seasons with little or unreliable rains, leading improve household incomes and investments. to a drought. More climatic shocks would have As a result, the current account deficit will devastating consequences for communities and improve over the medium term, at 16.4 the economy. Amid poor social safety nets and percent of GDP in 2023 and 14.4 percent and weak health systems, the poorest households 14.6 percent in 2024 and 2025, respectively. will resort to unhealthy coping mechanisms Nevertheless, the trade deficit will continue (including restricting consumption), as well as to be high as the economy is highly import- more internal displacement. dependent. Thus, it will take time to rebuild the economy’s productive capacity. The ongoing offensive efforts to eliminate Al-Shabaab threaten to delay and dampen Risks to the outlook are tilted to the downside growth prospects. Although Somalia’s The medium-term outlook remains uncertain. economy remains stable, the ongoing offensive It will continue to be subject to risks from poses a risk to economic activity as it heightens global developments, climate-related shocks, insecurity in central and southern Somalia, and security threats. These risks can impede thus severely affecting lives, livelihoods, and economic activity and reverse the growth prospects for peace and development. The recovery in the baseline scenario. insecurity situation in Somalia will continue to dampen the business environment for potential Global macroeconomic developments threaten domestic and foreign investors, while also Somalia’s growth prospects. There are two putting more pressure on the government to aspects of this which might affect Somalia’s spend on security. economy. Given Somalia’s dependence on imports—especially consumption goods— Given the volatility of Somalia’s economy higher global inflation could lead to faster and and the high risks to growth, this Economic larger financial tightening. This could in turn Update considers alternative scenarios for the lead to a slowdown among Somalia’s trading growth outlook. In the downside scenario, the partners, that could also slow global demand economy is projected to grow at 2.1 percent in or result in a recession. The higher prices from 2023, increasing to only 2.9 percent in 2024. trading partners will pass through to domestic This is anchored in: (i) poor climatic conditions prices, adding to the inflationary pressure. In including drought or floods and agricultural addition, a further tightening of global financial production continuing to be low as food 26 S om a l i a Eco n om i c Update Recent Economic Developments insecurity worsens, leading to increased food foreign investment post-HIPC Completion Point imports to cushion the vulnerable population; in 2023, as well as net exports as the current (ii) poor export performance because of drought; account improves. This growth acceleration (iii) global recession caused by high-interest is attributed to improvements in climatic rates; and (iv) an escalation of the conflict in conditions, and the country reaching the HPIC Ukraine leading to high commodity prices. In Completion Point. In addition, the upswing in such a scenario, the economy will grow at 2.1 economic activity is attributed to a recovery in percent in 2023 and 2.9 and 3.5 in 2024 and investment, with growth rates of 3.9 percent in 2025 respectively. The higher domestic food 2023 and an average of 5.4 percent in 2024–25. inflation will reduce consumption and higher food imports will styme economic growth. Policy Priorities for Somalia post- HIPC transition The cost-of-living increases will temper the As Somalia reaches the HIPC Completion growth of real incomes and domestic demand Point, it is important that it continues its will decline. In addition, the slowdown in the reform path to achieve an inclusive economic global economy and higher global prices will growth and prosperity to avoid sinking into increase the import bill. Tighter global financialfuture debt in the medium term and post HIPC conditions will reduce remittances and FDI to era. While the reforms needed are numerous Somalia and could further reduce the supply of and covers across many sectors, this report only official development assistance to the country. highlights macroeconomic policies and reforms Lastly, increased insecurity and protracted that promote inclusive growth and institutional conflict with Al-Shabaab will affect economic building.11 These include enhancing fiscal activities and erode business confidence. sustainability to avoid running a budget deficit; replenishing the fiscal buffer; strengthening On the upside scenario, growth will be more financial integrity; integrating Somalia in the robust, at 3.3 percent in 2023. This is anchored global financial system; and improving debt in: (i) improved weather conditions leading management. to a recovery in agricultural production and continued reversal of the drought effects; Enhancing fiscal sustainability (ii) the conflict in Ukraine will be resolved To enhance fiscal space for development swiftly; and (iii) the global tightening does priorities, the government needs to raise more not lead to global recession. In such scenario: revenue. Significant efforts have been made exports increase through modestly as livestock to improve and strengthen domestic resource restocking takes place and regaining of body mobilization by Somali authorities since 2016, quality; imports will increase due to a continued progress has limited by low levels of growth, pick-up of economic activities; and continued weak tax legitimacy, and fragmentation. humanitarian and social protection support to Domestic resource mobilization can be cushion vulnerable households. Under such a enhanced through the harmonization of the positive scenario, economic recovery will be customs and inland revenue administrations by robust in 2023 and GDP is expected to grow focusing on reducing fragmentation, improving at 3.3 percent. Economic growth for 2023 and the regulatory framework, and strengthening 2024 will be 4.2 and 4.7 percent, respectively. tax administration. Clarifying revenue and Growth will also be driven by higher private expenditure responsibilities across levels of and public consumption, higher domestic and government can improve intergovernmental The World Bank produced “Collection of Policy Notes for the New Somali Government” in June 2022, which summarizes sectoral policies which can help Somalia 11 achieve a higher faster and inclusive growth in short to medium run (World Bank 2022b). November 2 0 2 3 | Edition No. 8 27 Recent Economic Developments fiscal coordination and dialogue with all the economic expenditures, which can help to FMS can help to build consensus about the improve service delivery, perceptions of state transition to a national customs administration legitimacy, and encourage tax morale. and a national inland revenue administration. To gradually cover the operational costs, the Increasing access to finance and strengthening FGS and FMS governments need to increase tax financial integrity collection to finance core government activities To increase access to finance the financial to avoid borrowing in the short to medium system needs Structural and regulatory term. It must do so in a coordinated way so that further reforms. Increasing access to finance they do not all tax the same things or tax inter- and inclusion, the government and Central state commerce. Reforms for consideration Bank of Somalia could take tangible measures include completion of the ad valorem customs to deepen financial inclusion and enhance the reform, full implementation of POS machines, stability of the financial sector. Stepping up introduction of a modern income tax system, supervision of MTBs by the Central Bank of improving tax and customs administration, Somalia (CBS) as well as enacting the Financial among others. Institutions Law and National Payment Systems Law can support the stability of the To improve the efficiency of public financial sector and bring all payment systems expenditures, Somalia needs to strengthen under one regulation. In addition, reducing the controls over the wage bill and reorient challenges faced by Somali entrepreneurs – the budget to service delivery. Somalia’s including those owned and managed by women expenditure needs are vast, with ongoing –in accessing finance involves increasing the pressures to balance spending between capacity of financial institutions to mitigate military and administration expenses to risk perceptions and developing credit and secure the country, as well as identifying collateral registries could help to increase fiscal space for the priorities in the ninth access to financial products. National Development Plan (NDP-9). In the short- to medium-term, reforms should focus Strengthening financial integrity is critical on improving public expenditure management to integrating Somalia in the global financial to strengthen expenditure controls and fiscal system in the post-HIPC Completion Point transparency, improving the efficiency of public environment. The CBS should strengthen its expenditures with a focus on the wage bill working knowledge of supervised financial and a reorientation of the budget to service institutions and disclose risks to enhance public delivery. Curbing the growth of the wage bill confidence. Strengthening the enforcement and capping it to domestic or tax revenues of AML/CFT, as well as suspicious transaction will be critical for increasing the fiscal space reporting, can also help to guard against necessary to implement the NDP-9 priorities financial integrity risks thereby supporting in the social and infrastructure sectors. Going the establishment of correspondent banking further, advancing the dialogue as to which relationships. Developing a trusted means level of government will assume key functional of identification will also help to strengthen assignments, particularly in the security sector, KYC protocols. Accelerating the completion could support an improved allocation of of the national risk assessment is a priority in resources in line with responsibilities, thereby preparing for the Middle East and North Africa avoiding duplication. Over time, there should Financial Action Task Force Mutual Evaluation in be a greater orientation toward social and 2024. As such, it is critical. To support market- 28 S om a l i a Eco n om i c Update Recent Economic Developments based financial intermediation, the CBS needs take conscious steps to avoid falling back into to work toward: (i) enhancing the prudential unsustainable debt. The actions the country regulations for the banking sector; (ii) the should undertake include: (i) institutionalizing adoption of revised regulations concerning the DMU’s functions; and (ii) strengthening capital adequacy; and (iii) the introduction the legal framework for debt management and of reserve requirements for banks over the building capacity for managing fiscal risks from medium-term. This will be key as it builds tools direct and contingent liabilities. This would to influence credit markets and as it moves to include the risks that may arise from public- create a monetary policy space by undertaking private partnership agreements in sectors, such reforms to transition to a policy-oriented as energy and ports, among others. Primary institution. legislation for debt should be enhanced to include the purpose of borrowing, the use of Improving management and the framework for guarantees and on-lending, and the need for debt management: parliamentary approval of all domestic and As Somalia is set to reach the HIPC external borrowing, as well as the issuance of Completion Point soon, the commitment of guarantees. Regulations are needed to support not borrowing and institutionalizing debt guarantees and on-lending management management functions and developing regarding limits, processing, and the monitoring regulations to support guarantees and on of risks, as well as following-up on transactions. lending management will be key. The country These improvements to primary legislation can is expected to receive irrevocable debt relief help to provide the enabling framework for a upon reaching the HIPC Completion Point time when Somalia can borrow. soon after meeting floating triggers agreed at the Decision Point. Debt relief will provide a 1.4 Economic Growth Must Accelerate to fresh start for the country, as well as renewed Reduce Poverty access to development finance needed for inclusive growth. However, it is likely that risks Poverty remains high and widespread in to debt sustainability will persist after reaching Somalia. According to the recent SIHBS (National the Completion Point. The country needs to Bureau of Statistics 2023), an estimated 54.4 percent of the Somali population lived below Figure 1.21: Poverty headcount and poverty gaps remain the national poverty line as they consume high in Somalia less than $2.06 per day (see Figure 1.21).12 Of 78 this, the nomadic population had the highest 65 incidence of poverty at 78.4 percent. The rural 55 47 population had a poverty rate of 65.5 percent. 36 In urban areas, 46.1 percent fell below the 25 national poverty line. Although the nomadic 20 15 population records the highest poverty rate, it only accounts for 16.3 percent of the poor population compared to urban who have the lowest poverty headcount rate but account for National Urban Rural Nomadic over half of the poor population at 54.6 percent. Poverty headcount (%) Poverty Gap (%) The poverty gap measures the depth of poverty Source: SIHBS (SNBS, 2023). by considering how far, on average, the poor This poverty line is anchored on the cost of basic needs (the cost of food) that can provide the energy requirements needed for humans to survive per person per day. 12 The standard requirement of 2,200 kcal/person/day but for Somalia, the median total calorie intake in Somalia is 1,832 per person, per day. This translates to US$738 per person per year for food requirement and necessary non-food items. Comparing the consumption aggregate data of Somalia population against this national poverty line, the poverty headcount rate is 55 percent. November 2 0 2 3 | Edition No. 8 29 Recent Economic Developments are from that poverty line. This figure was 20 environmental systems. Water is a vital factor percent in 2022 and highest (36 percent) for of production. Therefore, diminishing water the nomadic community in Somalia. It was the supplies translates into slower growth. Research lowest among urban dwellers (15 percent). The has shown that some regions could see their 2023 Somalia Poverty Report estimates that the growth rates decline by as much as 6 percent extreme national poverty rate—the share of of GDP by 2050 because of water-related losses population whose total per capita expenditure in agriculture, health, incomes, and prosperity is below the food poverty line—is 20.9 percent (World Bank 2016). Ensuring a sufficient and with nomadic and urban population at 46.8 and constant supply of water under increasing 13.8 percent respectively.13 scarcity is essential to achieving global poverty alleviation goals. To achieve climate and Somalia’s economic growth rates have been development goals, water must be at the core of too low to reduce extreme poverty and boost adaptation strategies. To guide effective climate shared prosperity in the medium to long term. change adaptation, activities should reflect the With the population growing at an annual importance of water management for reducing average rate of 2.9 percent since 2013, real GDP vulnerability and building climate resilience. growth has not been sufficient to sustain per capita income growth for poverty reduction. Bad water-management policies can exacerbate The estimated per capita income growth has climate change’s shocks to the economy, been mostly negative during years of shock, and whereas good policies can go a long way less than 1.0 percent during years of economic toward neutralizing them. The impacts of water recovery. Per capita GDP was 0.4 percent in mismanagement are felt disproportionately by 2021 and contracted by 0.5 percent in 2022. the poor, who are more likely to rely on rain- These growth rates are inadequate to have a fed agriculture to feed their families. They also significant impact on the twin goals of reducing live on the most marginal lands, which are more poverty and boosting shared prosperity. The prone to floods. In addition, they are most at COVID-19 pandemic, higher global commodity risk from contaminated water and inadequate prices and climatic shocks have contributed sanitation. Therefore, ensuring a sufficient to the slow pace of poverty reduction in the and constant supply of water under increasing country. Somalia’s poverty headcount ratio scarcity will be essential to achieving global was estimated at 55 percent in 2022 (SNBS poverty alleviation goals. 2023). With per capita GDP growth projected to be less than one percent in 2023—2025 Water scarcity, exacerbated by climate change, period, Somalia still falls short of accelerating has hindered growth and development in poverty reduction over the medium term, thus Somalia, spurring migration to urban areas— undercutting the country’s capacity to meet and sparking conflict. Climate change is having the twin goals. Susceptibility to shocks have a deleterious impact on Somalia’s economic frustrated Somalia’s poverty reduction efforts. growth. The impacts of climate change are channeled primarily through the water cycle. 1.5 Climate Change Expresses Itself Climate models project rainfall to become Through Water more variable and less predictable. At the same Most of the climatic shocks in Somalia are time, warmer seas will fuel more violent floods water related. Water-related climate risks and storm surges. Climate change will also cascade throughout the food, urban and increase water-related shocks on top of already According to a study by the World Bank (2016), “High and Dry Climate Change, Water, and the Economy,” diminishing water supplies can translate into slower growth. 14 Some regions are seeing their growth rates decline by as much as 6 percent of GDP by 2050 as a result of water-related losses in agriculture, health, incomes, and property—sending them into sustained negative growth. 30 S om a l i a Eco n om i c Update Recent Economic Developments demanding trends in water use. Thus, water- have generated waves of migration and spikes related climate risks cascade through food, in violence within countries. urban, and environmental systems. Policy and investment choices also play an Growing populations and expanding cities important role in mitigating risks from climate increase the demand for water exponentially, change on water. Good policy decisions stand as supply becomes more erratic and uncertain. to improve Somalia’s growth rates with better The combined effects of growing populations water resource management. Improved water and expanding cities have increased demand stewardship pays high economic dividends. for water exponentially. However, water supply As discussed in the next section, more far- has become more erratic and uncertain. Water reaching policies are needed to avoid inefficient scarcity could greatly worsen in Somalia, where water use. Stronger policies and reforms are water is already in short supply. Growth rates also needed to cope with deepening climate are also negatively affected due to water-related stresses. Policies and investments that can impacts on agriculture, health, and incomes. help lead countries to more water-secure and As a fragile country, water insecurity could climate-resilient economies include better multiply the risk of conflict. Food price spikes planning for water resource allocation, adoption caused by droughts can inflame latent conflicts of incentives to increase water efficiency, and and drive migration. Regarding agriculture, both investments in infrastructure for more secure livestock and crop production are impacted by water supplies and availability. rainfall. Finally, episodes of droughts and floods November 2 0 2 3 | Edition No. 8 31 SPECIAL FOCUS INTEGRATING CLIMATE CHANGE WITH SOMALIA’S DEVELOPMENT: THE CASE FOR WATER November 2 0 2 3 | Edition No. 8 33 Special Focus 2. Integrating Climate Change with Somalia’s Development: The Case for Water 2.1 Introduction in the soils is extremely important. This can be achieved through robust environmental The relationship between water and the catchment practices. Water absorbed into economy in Somalia is multifaceted. In fact, it the soils is available for plant growth, and is a two-way street. Water shapes the Somali some may also percolate through into the economy as: (i) an ingredient of economic groundwater. Land degradation, deforestation, production, (ii) a source of variability and and rising temperatures due to climate change economic shock, (iii) an enabler of human development, and (iv) a provider of food mean that greater proportions of rainfall may security. If Somalia is to grow within sustainable be lost to unproductive evaporation, rather hydrological boundaries, provide inclusive than being used by grasses, shrubs, trees and services, and build resilience, Somalia needs crops and contributing to ecosystem services. an integrated economic policy that places Thus, managing landscapes and watersheds to water at its center. Water is scarce in Somalia. better absorb water is important. Integrated However, provided that water is well governed approaches to water resources need to consider and managed carefully, the country has both blue and green water in order to help sufficient water in its soils, rivers, reservoirs, Somalia build more sustainable and resilient and aquifers to meet core needs (that is, for growth paths. It is further important to ensure WASH, and livestock watering, services as well that the fraction of beneficial transpiration as the broader needs of its economy well into becomes larger and the best way to do this the future). is through increasing the productivity of rangelands and arable agriculture. Somalia’s water is both blue and green Somalia has a hyper-arid, arid, and semi-arid Water as an ingredient of economic production climate. Its inherent variabilities are expected Somalia’s waters are central to the country’s to increase in the future due to climate change. resilience, prosperity and economic Thus, it is essential to consider both of Somalia’s development. Indeed, the future prosperity of waters—referred to as blue and green water the country is determined by how well Somalia (Box 2.1). Given Somalia’s limited blue water, deals with its inherent water scarcity and the collection and retention of green water climate variability, including droughts. It is also Box 2.1: Green water and its importance in arid and semi-arid regions Green water is found in the soil, typically accumulating as part of rainfall and infiltration. Green water is either consumed by plants and the ecosystem through transpiration or evaporation (Mao and others 2020). Green water is the basis for rainfed agriculture, and it plays a critical role in terrestrial ecosystems, especially in arid and semi- arid regions (Liu and others 2009a; Rockström and others 2007; Rost and others 2008; and Schyns and others 2015). Grasses also depend on green water, which Somalia’s nomadic pastoralists use to feed their livestock. The accumulation of green water can be supported by collecting runoff and enabling it to infiltrate the soil. Blue water is contained within rivers, aquifers, and dams. Irrigated agriculture uses blue water. Relatively small amounts of blue water are required for Water, Sanitation and Hygiene (WASH) and livestock drinking water. Irrigated agriculture uses significantly larger quantities of blue water as compared to the uses cited above. 34 S om a l i a Eco n om i c Update Special Focus determined by how well the country manages will become increasingly important. In addition, water (and land) resources and develops its it will increasingly determine the long-term water supply infrastructure. Water is inextricably capacity of the land. linked to Somalia’s economic outputs, including the goods and services traded with the rest of Water is an enabler of human development the world. However, it also affects human capital Poverty rates in Somalia today are high. The formation and poverty. Based on an analysis of lack of safe, affordable water for household use rural water sector projects in Somalia, it has is one of deprivations faced; insufficient food been estimated that US$1 million invested in is another. In both the rural and urban areas infrastructure and livelihood development could of Somalia, diseases are associated with poor generate a discounted return of US$7.2 million water access. Water that is safe, reliable water (World Bank 2022). and readily accessible—available for multi-use services and close to the home—is essential for The blue water in Somalia’s aquifers and rivers, human health, labor productivity and human and the green water in its soils, are arguably the capital development. most vital ingredients of Somalia’s economic production. They will shape energy production, Water for food security manufacturing, urban development, the services The relationship between food and water in sector, livestock and more. Animal, agricultural, Somalia is extremely important. Water—both and forestry products—all of which rely heavily green and blue—directly determines local food on Somalia’s blue and green water resources— production. However, it also generates the have dominated the recorded goods exports export revenues that help to pay for today’s food since independence. It is currently not possible imports. Due to a significant increase in imported to fully quantify the economic contributions of food, starting in the early 20th century—and water, but it is possible to trace the channels despite stagnating domestic food production— through which water flows in the economy. food availability has increased in recent decades. In other words, there is more food consumed Water is a key source of economic shocks today in absolute terms as compared to the Water availability and scarcity contribute to past. However, due to a population growing economic shocks, particularly through droughts faster than the availability of food, many in the and floods, which can have large economic country face food shortages. Indeed, at times impacts. Climate change is anticipated to there is widespread hunger. Thus, food security increase rainfall variability and intensity, thus has turned into food insecurity. further impacting the economy. Droughts have negative (inter-generational) impacts on human Given these strong interlinkages between water development. It is anticipated that managing and economic growth in the Somali context, this variability through droughts and floods will Somalia Economic Update suggests a variety become more important in the coming decades of ways that Somalia might better integrate than coping with climate change-induced, water into its economic policy making, thereby long-term trends in rainfall amounts. Building helping to build a more sustainable, resilient resilient systems that can deliver food and water and inclusive economy. services during difficult periods (like droughts) November 2 0 2 3 | Edition No. 8 35 Special Focus 2.2 Context: Water and Development (FAO and World Bank 2018). In addition, climate in Somalia change is likely to cause temperature increases, Freshwater in Somalia today with increased evaporation, which is already exacerbated by land degradation. Reductions Water resources: Climate variability and rainfall in vegetation cover have grave implications for In Somalia, climatic differences, seasonality, livestock, livelihoods, and the economy. variable weather events and long-term climate change mean that groundwater and surface Groundwater water resources are not distributed evenly Groundwater is the primary source of over time and space. A hot, semi-arid climate Somalia’s blue water (as defined in Box 2.1), and tropical savannah climate exist in the south with aquifers providing the main medium for and far northwest, (Rubel and Kottek 2010). water storage.16Although plentiful across most Rainfall varies ranging from an average of 700 of Somalia, it can be a very expensive source millimeters/year (mm/yr) in the south, to less to develop and the quality is often low, as it is than 100 mm/yr in the northeast, although affected by salinity (Said and others 2021) and variability is very important. Rains are mainly in bacteriological contamination.17 High levels of the Gu season (monsoon-like rains from March fluoride also exist in some places. Springs are to June) and the Deyr (late September to early fairly common, but discharges are generally small December, again varying from place to place). and disappear downstream because of water Runoff in the wadis or toggas (seasonal rivers) withdrawals, infiltration, and evaporation. Three persists for hours to several days after rainfall, groundwater well fields supply the population with overland flow arising when soils are of Mogadishu. However, they are subject to waterlogged or water-repellent, or when rains saltwater intrusion. Therefore, abstraction are intense (Basnyat 2007). needs to be carefully controlled. Groundwater recharge from these wells is most likely from Somalia is subject to periodic droughts and underground seepage from the Shabelle River years with high rainfall.15 Seasonal rains, (as described below). droughts and flooding determine water availability, especially in areas distant from In terms of resilience to changing climatic Somalia’s two perennial rivers. There is no conditions, groundwater provides a reliable consensus regarding whether the Horn of Africa and extremely important source of water. As will receive more, or less, rainfall as a result of such, its use should focus on critical needs, climate change (FAO and World Bank 2018). such as WASH services, livestock watering, However, rainfall is predicted to be heavier. and high-value urban needs. If sufficient water Hence, floods are likely to become more remains, high-value cash crops for export frequent (Petersen and Gadain 2012). Droughts should be a priority. are also anticipated to become more frequent 15 Mild droughts are expected to occur every three and two years for the Gu and Deyr seasons, respectively; moderate droughts are expected every 11 and 12 years; severe droughts are expected every 28 years, for both seasons. Extreme droughts are expected once every 37 and 110 years for the Gu and Deyr seasons, respectively (Shilenje and Ongoma 2014). 16 Groundwater at shallow depths (<15 meters) is present in alluvial fills, fan deposits, and alluvium along the wadis. There are alluvial fills in basins, such as the Nugaal valley, in the north of the Hargeisa depressions. There are fan deposits along mountain ranges, and alluvium along wadis and the Shabelle and Jubba rivers and coastal dunes. These are essentially perched aquifer systems overlying the deep regional aquifers. The combination of soft formation and shallow groundwater is ideal for low-cost, manual drilling and groundwater abstraction. The crystalline basement rocks in the Bay region in the South (far north) are not continuous aquifers. Shallow, machine-drilled boreholes (30 to 60 meters) drilled into the bedrock in these fracture zones may yield 0.25 to 1 litre/second (l/s). Clay, siltstone, and gypsum deposits cover large parts of Somalia, such as the Sool, Sanaag, and Toghdeer regions in the North where the Taleh Formation overlies the Auradu limestone. These are categorized as nonproductive formations; however, they could yield water (often brackish and exceeding the 3,500 micro siemens per centimetre [microS/cm] threshold). Large parts of Middle and Northern Somalia are underlain by low permeability sediments. Deeper aquifers (Auradu limestones in North Somalia or Quaternary sands) are within drilling reach at a depth of 100–400 meters) [Tuinhof and Groen 2021]). 17 The few studies available report bacteriological contamination of dug wells, berkads, and hafirs (Berger 1985; EarthWater 1998; van Haren and others 2017; WASH cluster Somalia 2017). 36 S om a l i a Eco n om i c Update Special Focus Based on data from oil and gas exploration, resource (MoEWR 2021a). The resilience a possibility exists that very deep (300–1,200 of undeveloped surface waters to climatic meters below ground level) groundwater could variability is low. However, with investments be developed. However, deep groundwater is in basin infrastructure (dams, flood protection, comparatively expensive to develop. Thus, the and access to supplementary irrigation water) economic case for doing so would need to be in both upstream Ethiopia and downstream carefully considered. If large amounts of good Somalia, the resilience can radically increase. quality water are found, and available at an acceptable cost, this may become an important Virtually all of Somalia’s crop production takes future source of blue water for the country. place in the Shabelle (mainly) and Jubba basins. Although this only makes a small contribution to Surface water GDP, it is very important for food security and More than half of Somalia’s freshwater employment (MoPIED 2020). Projections show resources are produced from beyond its that long-term average runoff would deliver national borders.18 The Shabelle and the enough water in Shabelle to sustain people Jubba Rivers are the only two perennial rivers, and livestock. However, water would only be entering the country from Ethiopia. Flow in available in the lower sections for a few months the Jubba reduces by less than 20 percent per year (World Bank 2021a). Water shortages before it enters the ocean.19 In 2022, however, in drought years seem to be inevitable (MoEWR it dried out in some lower reaches (Hassan 2021a). Unless measures are taken, the total 2021). The Jubba flow is estimated to be over acreage affected by drought will continue to double that of Shabelle. The Shabelle River grow. Looking into the future, some locations flow ends in an area of alluvial deposits close to in the Shabelle river basin will likely become Mogadishu. There is anecdotal evidence that its unavailable for growing cereals and perennials hydrologic regime is altering, resulting in both due to water shortages (World Bank 2021a). an unprecedented dry river and floods (MoEWR Shortages of blue water also affect irrigation and 2021a). Upstream developments in Ethiopia exacerbate water conflicts (as discussed below). that are planned for the Shabelle, including hydropower dams and irrigation systems, have Water Scooping in Lower Shabelle not yet been implemented. However, the lack of a coordination mechanism with Ethiopia concerning equitable water use is cause for concern (MoEWR 2021a). The Shabelle River is currently the principal water source for an estimated 4 million people in Somalia, including Mogadishu. As such, it is critical to livelihoods and the economy (MoEWR 2021a). Rapid population growth and economic development alongside uncoordinated irrigation development Photo courtesy: Local media in Jowhar. is putting pressure on this scarce and finite 18 Somalia receives water from Ethiopia via transboundary aquifers, rivers and wadis amounting to an average of 8.2 cubic kilomaters per year (km3/yr). Internally produced renewable water is, on average, at 7.8 km3/yr (FAO 2014). 19 From evapotranspiration, groundwater recharge, and utilization. November 2 0 2 3 | Edition No. 8 37 Special Focus Widespread spate irrigation and wadi cultivation evaporation losses and surface runoff21 are key provides water in all other parts of the country to enhancing its use. With improved infiltration where cultivation is possible. Sand dams, sub- capacity, more green water is stored in the soil surface dams, large haffir dams and balleys for crops and grass growth. Land management, catch and store rainwater effectively. including soil health and vegetation cover, determines how much water from a rainfall Green water event is lost to evaporation. A small reduction Currently, green water (defined in Box 2.1) is the in the evaporation rates corresponds to a basis for food production in Somalia (cereals, potentially large increase in transpiration (for vegetables and fruit, milk and meat), sustaining example, for food production). most of the population (MoEWR 2021c). Given the limited and variable blue water resources, Current land and water productivity levels enhancing Somalia’s green water use in rainfed are much too low. However, the potential to agriculture and for pastoral livestock is essential increase yields is great, turning today’s yields of to improve food production. Increasing green 0.5 ton/hectare (ha) into volumes three to four water productivity can reduce demands on times higher.22 Improved land management, blue water, making it more available for WASH, in particular rangelands management, is an industry, manufacturing or services and other essential strategy for Somalia’s naturally hyper- needs. arid, arid and semi-arid areas, and variable climate. Notably, the entry point for enhanced The productivity of green water varies green water use is not the water sector, but enormously, and it is affected by human rather improved land management. For this activity. In the 20 years to 2009, Somalia lost reason, the Barwaaqo Project (the second almost 1 percent of its forest cover annually.20 phase of the Biyoole project) has introduced Land degradation, coupled with invasive species, a component to focus on the development of is also widespread (Tsegay and others 2015). environmental catchment services. Improving soil moisture and cutting unwanted Figure 2.1 provides an estimated water balance Greenhouse in Galmudug provided with water from a haffir dam constructed under the Biyoole project. of Somalia for the year 2020. Transpiration is water vapour released by plants as they grow. In the Somali context, this can be broadly considered to be productive—whether for agriculture, fodder, tree growth, or other natural processes. In contrast, evaporation, which occurs mainly from bare earth or water surfaces, is an unproductive use of water. The figure suggests that blue water used in food production (irrigated agriculture) utilizes almost all of today’s available blue water. However, WASH Photo courtesy: Abdallah Sulayman 20 The remaining forests, including juniper in the Golis mountains, tropical hardwoods along the southern rivers and adjacent floodplains and mangroves along its coast, are at risk from commercial pressures (MoLFR 2019). 21 This can be as high as 75 percent of incident rainfall in the first 48 hours (Rockström and others 2015). 22 Among small-holder farmers, only a fraction of rainfall typically infiltrates, and only a small fraction of this water is taken up by the crop, thus resulting in low on-farm crop yields. Experimental yields in the same hydroclimate generate on the order of 4 t•ha−1= 4 tons per hectare, and commercial yields often exceed 5 t•ha−1 ( Rockström and Falkenmark 2004). 38 S om a l i a Eco n om i c Update Special Focus Figure 2.1: Estimated water balance in Somalia (km3/yr) , 2020 Green food = 5 Bluefood = 2 P = 180 E = 140 T = 35 WASH= 0,3 Surface inflow = 8,7 Renewable blue available surface water = approx. 2,3 Surface outflow = 5,1 GW inflow = 0 Renewable blue available groundwater = approx. 0,6 GW inflow = 0 Source: Sandstrom, 2023 Notes: Data for the figure is based on FAO Aquastat (2014); Tuinhof and Groen (2021); MoEWR (2021a); and Basnyat (2007). The separation of actual evapotranspiration into transpiration and evaporation is 0,2 : 0,8, is an estimate shared by Prof Jacobus Groen, IHE Delft through personal communications. Available water is taken as 20 percent of renewable water, a rule of thumb stated by Basnyat (2007). Surface water outflow is from Michalscheck and others 2016). P = Precipitation; E = Evaporation, T = Transpiration; Green food = rainfed agriculture; blue food = irrigated agriculture; WASH also includes drinking water for livestock. The amount of virtual water export (mainly livestock) is a rough estimate. and urban services require very little. “Available” Comparing the water consumed in year 2020 surface and groundwater is estimated as 20 (Figure 2.2, about 11 km3/yr) with that of future percent of renewable sources, since only a small needs, as in 2033 (20 km3/yr), 2043 (33 km3/yr) share can be utilized due to costs, water quality, and at the endpoint in 2061 (65 km3/yr), there is lack of infrastructure, and climate variability. reason for worry about where the water will be In addition, surface inflow may change in the found. There are also questions about how it will future due to river infrastructure development be turned into food. If provided domestically— in upstream Ethiopia. It would change the status even if all available surface and groundwater of the Shabelle basin as a potential breadbasket is utilized, plus that of all-natural transpiration for Somalia. Groundwater inflow and outflow and if much evaporation is converted into are marginal. productive food transpiration (impossible at such a scale)—there is not enough water to Figure 2.2 provides a perspective regarding feed Somalia at increased levels of wellbeing. the numbers found above. The total water This paradox is further discussed in the food and consumed per year over time is presented. water security section. It is also the basis for an It is based on the UNDESA (2019) population agenda of change and wellbeing (last section). numbers, estimated total water consumption The devastating famine that ravaged the country between 1961 and 2020 (see section below on in the early 1990s is seen as a small “bump” in food and water security), and a 2061 scenario, the curve. That bump should be compared with which represents increasing wellbeing. It required future water needs entering the food eventually corresponds with the per capita production chain to feed a growing population water consumption found in today’s Kenya and with higher wellbeing. Turkey (both representing a higher standard of living as compared to Somalia). November 2 0 2 3 | Edition No. 8 39 Special Focus Figure 2.2: Actual and predicted water consumption, half (60.1 percent) of the population has 1961–2061 access to safely managed drinking water in 70 the dry season. There are wide disparities 60 across places of residence, with only 14.2 50 percent of nomads and 51.2 percent of rural Total water (km3/yr) 40 residents having access to safely managed drinking water in the dry season. This 30 compares with a figure of 71.9 percent of 20 urban residents. 10 • About six in ten people use improved 0 toilet facilities (60.7 percent). The usage of improved toilet facilities is common in urban 1960 1970 1980 1990 2000 2010 2020 2030 2040 2050 2060 Source: Staff calculations using various data. areas (72.5 percent), and rare in nomadic areas (8.5 percent). It accounts for just over Water and water supply infrastructure half of rural residents (54.7 percent). In rural areas, water sources tend to be used for • A number of households (29.2 percent) multiple purposes (drinking, domestic use, and share their toilet facilities with other livestock watering). In towns and cities, piped households, with slight variations across networks, point-source vendors at boreholes places of residence, ranging from 14.5 and dug wells, as well as truckers and animals percent of nomadic households to 26.5 and and human-drawn carters deliver water. 30.6 percent of rural and urban households, respectively. According to the latest data (National Bureau of Statistics 2023): Somalia has hardly any natural surface • Approximately 77.7 percent of the water storage. However, water is sometimes population have access to improved water diverted from temporary streams into masonry services during the rainy season, and 74.7 reservoirs, such as berkads and haffirs.23 percent during the dry season. More than Depending on rainfall, these structures can store Sand Dam Water Storage in Debis and Dinqal in Somaliland Photo courtesy: Chantal Richey. Berkads are open-plastered cisterns dug in unconsolidated soil or hewn in bedrock (storage capacities of 150 to 500 cubic meters [m3]). Hafirs are created behind dams 23 on gently sloping terrain. They have storage capacities of 500 to 10,000 m3. 40 S om a l i a Eco n om i c Update Special Focus water for a few months after the end of the discussion has revolved around the demise of rainy season. Alternatively, water can be stored the Jubba and Shabelle riverine areas’ irrigation in wadi sediments behind sand or underground infrastructure and potential rehabilitation. dams. Thus, it can be available for dry season However, there are questions regarding the use.24 Hand-dug wells depend on shallow appropriateness or sustainability of large, groundwater, but levels fluctuate seasonally and centrally managed infrastructure. Further, the interannually, with wells often dry at the end World Bank (2021a) indicates that, looking into of the dry season. Boreholes that tap deeper the future, there will not be sufficient blue water aquifers, large sand dams and underground to irrigate the land that is potentially available in dams can provide blue water during moderate the Shabelle basin. and severe droughts.25 Subsurface dams and wadis together make better use of groundwater. Water contributes to Somalia’s economy As such, they may be able to provide buffering through forestry. However, deforestation has capacity. However, water quality needs to be been significant over the past 50 years, with considered, particularly salinity, fluoride, and flood plain forests essentially gone. This is one microbiological contamination. of several factors contributing to the disruptions caused by flooding. The diversification Water for the rural, and export economy into economic activities, such as charcoal Somalia livestock rearing has historically been burning, may have boosted some incomes the mainstay of the economy and source in the short term, but such activities have of wealth for most households. Less than 5 degraded rangelands further. Given the ongoing percent of land in Somalia is considered suitable unfortunate dependence on charcoal as a source for cultivation, of which over 75 percent of energy and export earnings, and importance of is suitable for rainfed agriculture, and the forests in soil conservation, agroforestry remains remaining 25 percent has potential for irrigation an important, and underexplored, subsector. (FAO and World Bank 2018). Boosting livestock Livestock Watering at a Sand Dam in Debis, Somaliland production depends fundamentally on ensuring access to grazing areas, as well as the year-round availability of livestock feed for herds. Somalia’s cereal production peaked in 1989. Since then, it has been challenged by inadequate water and transport infrastructure, persistent insecurity, weak regulatory and enabling institutions, and severe environmental degradation of rangelands and forested areas (FAO and World Bank 2018). Considerable Photo courtesy: Stephen D’Alessandro. Sand dams are constructed in the alluvial beds of wadis, with storage capacities of between 5,000 and 40,000 m3. 24 Over the last century, boreholes (50 to 400 meters) have been drilled into limestone and sandstone aquifers and thick alluvial sand deposits. Generally, borehole depths 25 increase from west to east. November 2 0 2 3 | Edition No. 8 41 Special Focus Water supply service delivery Climate change and variability will continue to Water supply services are delivered by public, affect daily life in Somalia. These realities are private, and international institutions, as well intertwined with land management challenges, as by households themselves. As such, they deforestation, difficulties in accessing pasture are largely unregulated. Private operators play and conflicts, among other issues. These a critical role in service delivery, as do aspiring challenges can exacerbate the situation even water utilities in urban areas, as well as small- further. Recurrent drought and flood events, scale service providers in urban and peri-urban coupled with a lack of safeguards and coping areas or private entities in areas under the mechanisms, have had severe humanitarian control of Al-Shabaab.26 consequences.27 Thus, it has proven to be difficult to develop resilience. Village- and community-level water committees play a central role in water Extensive floods can make roads inaccessible, resource management, but projects often affecting the transport of agricultural outputs. fail due to the inability of the hastily trained On the positive side, floods contribute to water committees to sustainably manage the groundwater recharge. Flooding is not only operations of the respective water point(s). a result of the variable climate, or climate In 2019, of the more than 5,000 water points change, but is also driven by a loss of forest mapped across the country, fewer than half cover. However, poor land management were functional (Valid Evaluations 2020). Rent- practices worsen the effects of flooding and seeking behavior, the limited enforcement of drought. Heavy rains, combined with existing the roles and responsibilities post-hand-over, land conditions, deforestation and urbanization and a lack of ongoing external support for water can generate floods, resulting in damage and committees also leads to irregularities in the forcing people to leave their land. Dealing revenue collection process. effectively with Somalia’s challenges—including inherent variable rainfall and associated The effects of climate variability, poor land surface water, harnessing groundwater and management and deforestation managing land—will determine the future of The ecosystem services that benefit millions the country, and associated wellbeing of its of Somalis daily are critical, but they can be people. These are reflected in the opportunities difficult to measure and manage. Examples and recommendations in the final chapter of include providing fuel wood; groundwater this report. recharge via vegetated landscapes; soil stabilization; reduced flooding via reduced Over centuries, pastoral movement has runoff; and improved water quality. To protect been a livelihood system which has been and fully benefit from these services, policy adapted to harness the temporal and spatial makers will need to develop ways to measure variability of food and water availability for and manage them. This requires innovation, livestock. Traditionally, livestock has been knowledge, dialogue, and inclusive governance, moved to access year-round pastures and water but will in the end deliver resilience and higher sources. Although this remains the case for wellbeing. some, migration to internally displaced person Large operators include: nine in Hirshabele, three in Jubaland (excluding an undefined number in Lower Jubba and Gedo regions), and three in Puntland. Galmudug 26 records having 31 operators, but these are unlikely to all be large. In the early 1990s, 300,000 people died from hunger because of multiannual droughts. During the floods in 1997 and 1998, there was improved action and support by 27 the diaspora and international community. However, the situation in the early 1990s led to an estimated 1,400 casualties, with another 1 million indirectly affected; in addition, more than 60,000 ha of crops and farmland were lost. 42 S om a l i a Eco n om i c Update Special Focus (IDP) settlements has become another coping with associated increased demands for water strategy, as has family splitting. and food. These trends are recognized by the government as they are putting unprecedented Climatic variability manifests itself through pressure on land and water resources (MoEWR movement, migration, and the displacement 2021a). of people, whether as nomadic pastoralists, IDPs or migrants abroad. Over one million Rural and urban populations agro-pastoral and nomadic households rely on Somalia’s livelihood systems comprise four farming and livestock for their livelihoods (FGS broad categories: pastoralists, agro-pastoralists, 2018). The movement of rural people to IDP fishing and coastal communities and urban settlements tends to be a response to flood populations. Internally displaced persons are and drought events, but some IDPs remain considered to be a fifth category (MoEWR there. Shocks to the rural economy can push 2021a). An estimated 26 percent of Somalis people into poverty in peri-urban areas and IDP follow a nomadic way of life as pastoralists (see settlements. Large cities close to drought-prone above), with another 23 percent living in rural areas have also received IDPs, with attendant areas. Health impacts for rural households due pressure on land and water resources. to inadequate water supplies are significant. An estimated 2 million people, or 22 percent, People, Growth, and Urbanization of the rural population currently rely on water Population and population growth from unimproved sources. Inequalities in access In 2022, Somalia’s population was estimated to water supplies and sanitation between rural at 17 million, with annual population growth and urban populations, between IDP and non- of 550,000 or 2.9 percent (UNDESA 2019). In IDP populations, and between men and women, absolute terms, a peak increase will occur in are significant. Somalia is the only country in the 2055 (UNDESA 2019). The population could world with a rural-urban gap of more than 50 reach over 35 million by 2050. By the end of the percentage points in terms of access to a basic century, it would be much higher (Figure 2.3), water supply (WHO and UNICEF 2019). Figure 2.3: Population estimates for Somalia Total population Population by broad age groups 55 120 50 45 100 40 Total population (million) Population (million) 80 35 30 60 25 20 40 15 10 20 5 0 0 1950 1975 2000 2025 2050 2075 2100 1950 1975 2000 2025 2050 2075 2100 Year Year Source: UNDESA (2019). Note: Medium-variant projections for 2020–2100 are shown as the thin, colored lines, and uncertainty is shown in lighter shades for 95 percent prediction intervals. November 2 0 2 3 | Edition No. 8 43 Special Focus An estimated 30 percent of Somalia’s At the national level, gender inequality is population lived in urban areas in 1990. That also evident in women’s low participation in has risen to about 54 percent today (World Bank leadership and decision-making roles. Gender 2021b). Unfortunately, urbanization and the disparities weaken effective water governance disposal of garbage in river and canal systems in in Somalia. Therefore, it is essential that reforms the Shabelle Basin are having an adverse effect to water governance, as well as investment on water quality. Furthermore, wastewater planning, include women. treatment in Mogadishu is inadequate (MoEWR 2021a). If well managed, urbanization Water contributes significantly to education, is considered to be a help to Somalia’s improving access to education for girls and development. However, the failure to meet the keeping them in school. Ensuring secondary needs of growing urban populations threatens school education for girls enhances their to undermine Somalia’s modest successes and opportunities to join the labour market and wider stability (Danert 2021). contribute to economic development. It may also reduce fertility rates (Danert 2021). The Inadequate, distant, and costly water supplies water sector has an extremely important role to undermine animal health and survival, the play in keeping girls in school by ensuring that delivery of high-quality animals to markets, and suitable WASH facilities are available, and that other aspects of the value chain of livestock and menstrual hygiene management is considered. dairy production and processing. Water sources are also needed on livestock migratory routes. Cooperation, Disputes, and Conflicts However, the lack of water supply sources may Traditionally, communities have collectively also have a role in safeguarding rangelands used and shared rangelands and forests. from settlement. Disputes and conflicts occur Grazing disputes, leading to fighting between between pastoralists and farmers, as well as neighbouring pastoral clans, have become more between pastoralists themselves. common throughout Somalia, including at the Ethiopia and Kenya borders. “A study in three Gender pastoral districts of Gedo region … documents Though women in Somalia are often consulted the rise in communal conflicts, including livestock about the management of water resources, thefts and violent clashes between clans, as a they have traditionally been excluded from the result of intensified competition over the use of final decision-making process.28 Although data shared resources, such as water, pasture lands, concerning women’s participation in Somalia’s and humanitarian aid” (FAO 2016). water sector institutions are not available, anecdotal evidence indicates that most In general, clashes involving rival clan militias decision makers are men. Thus, women rarely that start from communal disputes remain the play a central role in defining water policies, single most common form of armed conflicts, programs, and laws. If women’s concerns are comprising about 35–40 percent of total to be considered, they need to be included in security occurrences per month (MoLFR 2019). the planning process. Also, as women have These conflicts are often resolved by local clan important roles to play in water management, elders and religious leaders, with local district or they need to be well supported. regional authorities intervening only in the case At the community level, one or two positions are reserved for women in village water committees. However, customary law and cultural norms undermine women’s 28 input into management and decision making. 44 S om a l i a Eco n om i c Update Special Focus of major interclan fighting (World Bank and FAO Legal, policy and institutional frameworks 2018). Mediation by elders and religious leaders Xeer is essential (World Bank and FAO 2018). The Xeer, Somalia’s customary law system, is an unwritten code of conduct that has governed Conflict over access to natural resources its clan-based society over the centuries. undermines human and economic It includes provisions that deal with the development. management of water, pastoral land, forests, frankincense, and marine activity. The Xeer has Localized conflicts between farmers and herders, specific rules for water sharing and queuing, and between different pastoralist groups, especially during times of water scarcity. frequently revolve around issues of contested It also has rules for settling water-sharing land use, grazing rights, and insecure access disputes between clans in conflict (Puntland to water and pasture. Expansion of private Development Research Center 2003). enclosures on traditionally open communal rangelands, especially along livestock migrationLivestock in Somalia are the major repository of routes, jeopardizes the mobility of pastoralist individual and national wealth. They are vital for communities, weakening their capacity to food and for the economy. However, Somalia’s cope with adverse climate conditions. Existing pastoralism and livestock are constrained by tensions and conflict risks are amplified land degradation, a loss of communal grazing during extended dry periods, when pastoralist land, and expansion of enclosures. These are all livelihoods become particularly precarious underpinned by weaknesses in the traditional (World Bank 2019b). and formal governance of rangelands. Empowering customary pastoral institutions is There is no simple solution, but conflicts over a key route to addressing the fragmentation of natural resources are an issue of immense the rangelands. strategic importance for the country. One of the key challenges facing Somalia is Al-Shabaab-controlled area communities are how to build on the strengths of customary affected, as their lives are threatened and governance systems, while also supplementing assets confiscated. In addition, people face them with more contemporary governance abductions, forced marriages, and a culture of systems where they are required. fear and mistrust. There is also an undermining of community participation in peace initiatives Formal governance (UNSOM n.d.). Somalia has started to develop a formal legal The conflicts affecting the society in Somalia framework to anchor water sector institutions, cannot be ignored, and there is much need thus establishing a nascent multilevel water for dialogue. Water and natural resource governance framework. Key legislation includes management—which affect the livelihoods Somalia’s Provisional Constitution (2012) and and wellbeing of all Somalis—provides an ideal the Water Act of 2011, which is due for significant entry point for dialogue. This is reflected in the revision. The National Water Resources Strategy final chapter of the report as an opportunity— (NWRS) for 2021–2025 includes directives to calling for Somalia to deliver a whole-of-society operationalize the water sector’s governance water dialogue. framework, as laid out in the Water Act. This includes assigning public sector responsibilities November 2 0 2 3 | Edition No. 8 45 Special Focus for the federal, state, and local governments. the water sector, is urgently required. This is an The Livestock Sector Development Strategy, issue that is reflected in the recommendations the National Climate Change Policy, and the of this report. National Adaptation Programme of Action all have a bearing on water issues. 2.3 Food and Water Security Food security Current relevant public sector institutions that directly concern water include the Ministry Food insecurity is a major concern in Somalia. of Energy and Water Resources (MoEWR) at According to the last household survey the federal government level, including the (National Bureau of Statistics 2023), over half Department of Water. Each FMS (Puntland, of households (52.2 percent) were unable to Galmudug, Hirshabele, South West State, and afford healthy and nutritious food in the month Jubaland) also has a Ministry of Energy and preceding the survey. Over a third of households Water Resources. They perform a range of de (34.9 percent) experienced hunger, and more facto functions related to the implementation than a quarter (27.1 percent) went without eating of water infrastructure development and for a whole day at least once. The prevalence of rehabilitation projects. In Somaliland, the “moderate or severe” food insecurity according Ministry of Water Resources discharges to the Food Insecurity Experience Scale (FIES) is functions similar to those of the MoEWR. 44.3 percent in the overall population and 62.9 Progress has been made in aligning the federal percent in the nomadic population. and state level ministries. Water for Food Fragmentation and coordination About 90 percent of the daily water needs of Water service provision is minimally regulated Somalia are linked to growing and consuming and highly fragmented. This is coupled with a food.29 Understanding the water footprints lack of distinction of roles and responsibilities, as of different products and services can help to well as human resource capacity constraints. The build an understanding of where water is used water sector is dominated by non-state actors and where trade-offs will need to be made. and the private sector, alongside households A water footprint is the water required in the taking their own initiatives. Gaps include a lack process of producing foods, goods, and services. of regulation of the quality of services, tariff Water is no longer physically found within a setting, the collection of revenues, operations product itself, but it was used or consumed and maintenance and ensuring equity. Though during production. Table 2.1 provides examples constitutional provisions mandate regular of the amount of water required to produce meetings between federal and state-level some products. In low-income countries, where ministries to coordinate water management consumption of services and manufactured issues, most interactions are conducted on an ad goods is low, most water (often over 90 percent) hoc basis. This contributes to the misalignment is usually used for the production of food.30 of priorities between different levels of Generally, water consumption varies between government. Regular coordination, which 1,700 and 8,000 litre(l)/person/day. Higher per extends beyond what is currently considered as capita water consumption is often associated Blue and green water for in-country production of food for human consumption and export includes cereals, vegetables, fruits, milk, and meat, plus the water used in 29 the production of food that is imported into Somalia. In contrast, in high-income countries, where the consumption of manufactured goods and services is high, the food share of virtual water consumption is about 30 50 percent. The percentage of virtual water also represents the food diet, where a meat-based diet requires much more water in the production compared to a vegetarian diet. 46 S om a l i a Eco n om i c Update Special Focus Table 2.1: Embedded water content of key food and growth constraints due to land conflicts, limited other products grazing rights, and weaknesses in production Water requirement Product (litres) (Danert 2021). 1 kilogram (kg) beef 15,000 By linking (i) a food production index (1961– 1 kg cereals 1,500 2020),32 (ii) recent data concerning food imports 1 kg of milk 1,000 (FAOSTAT), and (iii) the value of 1,800 litres/ 1 pair of shoes (leather) 8,000 person/day of water consumed in 2020, a virtual WASH needs / per person 20-200 water consumption history of Somalia has been 1 smartphone 1,000 developed, alongside a set of future scenarios Sources: Hoekstra and Chapagain (2007); data for smartphones from InnovEnergy (https://www.innov.energy/en/salt-blog/virtual- (Figure 2.4). water-production) Looking at the past, Figure 2.4 shows that in the with higher levels of wellbeing. There is also 1960s, the daily agricultural water consumption a clear correlation between per capita virtual water consumption and GDP. per capita was much higher compared to 2020. The peak occurred in 1970 at a rate of 3,500 Average water consumption in Somalia is litres/person/day. This exceeded that of Kenya about 1,800 l/person/day and varies between and approached that of Turkey today. From different population groups and over time then on, food production per capita stagnated, (Chapagain and Hoekstra 2004).31 Given the due to issues such as conflicts, increasing water current food conditions found in Somalia, scarcity, degrading water infrastructure, and long-term consumption below this level environmental degradation. Thus, Somalia would probably be associated with severe and was unable to match and meet the needs of a recurrent food shortages, frequently turning Figure 2.4: Per capita water consumption in Somalia into famines. 4,000 Water Consumption (litres / person / day) History of food and water in Somalia 3,500 3,000 Food imports to Somalia are not a new 2,500 phenomenon, but the scale changed 2020 2,000 significantly from the early 2000’s. This probably 1,500 reflects a stagnating domestic agriculture sector, 1,000 unable to produce and transport the food 500 needed by a growing population. The situation 0 has been further exacerbated by water scarcity 1961 1964 1967 1970 1973 1976 1979 1982 1985 1988 1991 1994 1997 2000 2003 2006 2009 2012 2015 2018 2021 2024 2027 2030 2033 2036 2039 2042 2045 2048 2051 2054 2057 2060 and conflicts. Studies provide evidence of an More food, high popultation growth More food, low popultation growth A new wellbeing Business-as-usual agriculture sector unable to produce more food Source: Staff calculations using various data. under current production conditions (World Notes: The solid medium blue line from 1961-2020 (litres/person/day) shows a virtual water consumption history of Somalia, with a 2021 to Bank 2018), as well as a livestock sector facing 2061 projected “business-as-usual” scenario added (see below). 31 Although calculated for 2004, the estimate of 1,800 l/person/day likely remains valid for 2020. For comparison, countries with higher virtual water consumption per day and person than Somalia include Kenya (3,000 litres); Ethiopia (3,200 litres); South Africa (3,400 litres); Turkey (4,500 litres); and Egypt (3,700 litres) (MoEWR 2021c). 32 The food production index for 1961 to 2020 for Somalia is provided by the Food and Agricultural Organization, and it is presented at the World Bank Open Data Source at: (https://data.worldbank.org/indicator/AG.PRD.FOOD.XD?end=2020&locations=SO&start=1961&view=chart). Displacement of the rural population to the cities and the destruction of irrigation systems caused by civil war November 2 0 2 3 | Edition No. 8 47 Special Focus rapidly growing population. The famine of the 2038) is followed, whereby many large project- early 1990s is reflected in a rapid drop in water based investments are made in food and water consumption. By 2020, it had reached the level development and food imports accelerate. It is a of 1,800 l/person/day, as discussed above. successful period when people are faring better. However, as climate change persists, conflicts Future food and virtual water needs and diversions remain. Also, productivity Today, Somalia depends on the importation of remains low. Therefore, this period of growth food to sustain its population.33 The model used and increasing wellbeing cannot be sustained. to develop Figure 2.4 uses four potential future As a result, in scenario 1, population growth scenarios. These all have the same starting point exceeds the growth of food availability, and food in 2020, that is, a virtual water consumption of insecurity once again proliferates. 1,800 litres/person/day and a combination of four food sources: The outcomes of the four scenarios, as presented by the projections in Figure 2.4, are • meat and milk (from in-country livestock quite different: rearing)—30 percent; 1. Business-as-usual (solid, medium blue line): • rainfed crops—15 percent; Virtual water consumption decreases to • irrigated crops—15 percent; about 1,000 l/person/day in 2061. This a • imported food—40 percent.34 level that is unprecedented. It will most likely cause widespread endemic food shortages, Underlying assumptions (further detailed in with recurrent famines and extremely low Box 2.2) are that scenario 1, a business-as- GDP. Such a future would be catastrophic usual approach, is likely to develop if water for Somalia. Given current food and water remains a water sector issue only, managed by difficulties, at 1,800 l/person/day, already a cadre of professionals and developed within by 2030—and with about three million more its respective line ministries and engaged people in demand of food and water—the organizations. Scenarios 2 and 3, both of current situation is likely to be much more which pertain to more food, require that water damaging to people in Somalia. becomes more than a water sector concern. This requires changes in culture, norms and values, 2. More food, lower population growth with a focus on improving national food self- (dashed violet line): Increased use of green sufficiency. Scenario 4 adds another dimension, water in rainfed agriculture, and higher namely a massive increase in food imports. With levels of imported food means that virtual this scenario, self-sufficiency is complemented water consumption rises to about 2,700 by trade-based food security. Figure 2.4 presents litres/person/day, which is comparable to projections of these four scenarios. Kenya of today. By 2061, this is estimated to reflect a GDP of about US$5/person/day. All four scenarios are projected to start in 3. More food, high population growth a similar manner. After a five-year period (dashed green line): Successful investments (2023–2028), where no changes in food and have been made in the agriculture sector, water production and management take place promoting more food production in rainfed compared to today, a ten-year period (2028– systems, as well as livestock exports, thus 33 Displacement of the rural population to the cities and the destruction of irrigation systems caused by civil war, state fragmentation, and climatic shocks transformed the commodity composition of imports. Somalia’s large trade deficit is financed largely by private remittances and official grants. 34 The percentage separation into different sources does not have a strong basis in past studies. Rather, it represents data from reports (Basnyat 2007; ICPALD 2016; and MoEWR 2021b), alongside personal communications with Somali experts in water and food development. 48 S om a l i a Eco n om i c Update Special Focus enabling more food imports due to export people (rainfed agriculture) and food for earnings. However, compared to 2020, cattle (grass and fodder) is produced at much these gains need to be shared by a larger larger scales. Virtual water consumption population. Virtual water consumption approaches 4,000 l/person and day, similar remains under 2,000 l/person/day. By 2061, to that of Turkey today. The GDP is about GDP amounts to about US$1.5/person/day. US$25/person/day. People are food secure 4. A new wellbeing (dashed red line): Due to and enjoy high levels of wellbeing. a new reality of norms and conditions, the Somali population is growing much slower, In conclusion, Somalia’s critical situation faces and the economy has shifted to higher both supply and demand side issues, which export earnings, including as an international require careful consideration if the country quality-meat producing hub and exporter. In is to achieve food and water security. It is not addition, by massive land use improvements, enough to only reduce population growth or including the collection of runoff (rainfall increase food availability. Rather, both must be harvesting, damming ephemeral streams) addressed simultaneously. and improved soil moisture, both food for Box 2.2: Assumptions of the four scenarios for virtual water consumption in Figure 2.4 1. Business-as-usual. No major changes in water and food production management over a five-year period (2023–2028). This period is followed by ten years when all four sources of food supply increase by 5 percent per year. Given the agricultural stagnation Somalia has experienced in recent decades, this actually represents a significant increase in domestic agriculture production. This ten-year period is followed by a period of no further growth from 2039 up to 2061, due to climate change, conflicts that block new opportunities, and a lack of training and extension. Population growth throughout the period is based on the UN Population Division’s predictions, with an endpoint of 46 million in 2061. Blue water resources are limited, and green water resources are not unlocked and utilized. 2. More food, lower population growth. A deliberate improvement to put water (and food) at the center of national development. This scenario is similar to scenario 1 but adds a continuous 5 percent annual increase in rainfed food production and a 3 percent annual increase in food importation for the full period (2028– 2061). Population growth follows a reduced rate, with an endpoint of 30 million in 2061. The opportunities for increased rainfed agriculture come from improved land, water and agriculture management. As a result of enabling pastoralist production systems to further adapt to climate change variability, export earnings increase, thereby enabling more food to be imported. Meat and milk stagnate due to urbanization, and a lack of blue water limits irrigated crop production. Blue water resources remain the same as in scenarios 1 and 2, and green water resources are increasingly utilized as an outcome of improved security, knowledge, and more export and diaspora transfers 3. More food, high population growth. This scenario reflects a future where many technical issues linked to food and water have been achieved (including improved land management, security, enhanced rainfed agriculture, and increased food importation). However, the norms determining population growth have not changed. The scenario mirrors scenario 2 on the supply side of food availability, but the demand side also increases strongly. Population growth has an endpoint of 46 million in 2061. This scenario highlights the importance of how many people the limited food and water resources are shared between. 4. A new wellbeing. The fourth scenario resembles scenario 2 in terms of food and water supply and the demand sides. However, a major food import boost is added, increasing importation by 6 percent each year, starting in 2028 and ending by 2061. By the end of the period, about 60 percent of all food needs are met by importation. This represents a percent-wise doubling from today. November 2 0 2 3 | Edition No. 8 49 Special Focus Horticulture, Farmer-led Irrigation Development and Greenhouse Training Produce Significant Results in Galmudug Photos courtesy: Abdallah Sulayman. The supply side emphasises green water food productive, or less sustainable uses need to be production, the careful allocation of scarce fully considered. blue water resources, and the promotion of appropriate land management systems to 2.4 An Agenda for Change and Wellbeing collect rainfall, reduce evaporation and improve To support the transition from fragility, reduce soil moisture and soil health. It also requires poverty, and promote shared prosperity, ensuring flexible and open grazing rights for improved access to, and quality of services pastoralists. All of these will serve to increase through better economic governance are high climate resilience. Demand-side issues are also level outcomes of the World Banks Systematic closely linked to the number and wellbeing of Country Diagnostic Update (2023). people requiring food and water. Improved household resilience to shocks is Although an uncomfortable issue, population a foundational high-level outcome and this growth—generally considered as part of social report draws to a close by presenting an agenda and health sectors—is a major concern for for change and wellbeing in Somalia framed achieving adequate water and food services. around water. The agenda draws on both supply Thus, family planning is part of water resource and demand issues. It provides an alternative management, requiring new norms and values, to a future potentially characterized by severe as well as more gender equality to adapt to a food and water scarcity, endemic conflicts, and critical context. rapid population growth, resulting in recurrent food insecurity and societal disintegration. The allocation of blue water is also contentious. Even assuming that WASH needs are considered The agenda presents a series of positive first, subsequent decisions are challenging, drivers for change, alongside constraints and including redistribution of existing water (and opportunities for economic development. The land) rights, access and uses. These can have drivers comprise Somalia’s rich cultural identity, immediate negative effects, despite ultimately including Islamic water heritage, very strong being of benefit to the country. Decisions to support from the diaspora, entrepreneurship, the allocate water, for example, to high-value cash increasingly skilled and experienced government, crops for export, an IT-sector and for livestock a vibrant livestock and livestock export sector, and meat export, and away from other, less and considerable international support.35 The Islamic water heritage is the spiritual philosophy of water appearing as a symbol of divine generosity, without which the earth would not be able to provide food 35 and drink for people and animals. 50 S om a l i a Eco n om i c Update Special Focus To bring wellbeing to Somalia, a number of to address root causes of problems, rather constraints need to be overcome, including than emergency needs. conflict and division, rapid population growth, capacity and knowledge gaps, and access to This is a complex, sensitive and long-term adequate funds to pay for imported food. process, which must be fully defined, owned, and managed by Somali society. The agenda highlights five opportunities, all of However, it can be achieved. Four specific which are aligned with key national policies and recommendations include: strategies.36 Each opportunity can be realized a) Incentivize regular coordination between through a number of specific recommendations: federal and state levels as envisaged by 1. Ensure coordination and deliver a whole- national policy. of-society water dialogue. This would help b) Commence transboundary coordination, to overcome conflict and division and find particularly with Ethiopia.37 solutions to sensitive issues linked to culture, c) Establish a small management team norms and faith. comprised of very senior clan, faith, private sector and government staff. The Coordination must be regular, rather than group is to be capacitated to manage ad-hoc. Dialogue needs to bring together water, economics and development. faith, community, clan, and private sector d) Produce a series of short, attractive and leaders, as well as academia and civil society professional videos that outline the with water supply and water resource current situation and scenarios for future professionals and government authorities. development, including well-known senior leaders participating in their Coordination and dialogue need to support development. The preparation of the the positioning of water at the center of videos provides a vehicle for dialogue, Somalia’s development process, exploring and the videos themselves will provide how to balance the demand and supply starting points for further reflection of food and water. The dialogue needs to among stakeholders. explore the contentious issue of how to e) Develop and undertake a series whole- slow population growth—as other countries of-society dialogue. Define objectives, with similar contexts of faith, culture, activities, processes and outputs. socioeconomic conditions, and politics have Determine who to engage and how to done. Attention should be given to issues disseminate and share the results. linked to improper financial management, partiality, as well as equity issues and equal 2. Establish a blue and green water-centered opportunities. The dialogue should be national economy. With its arid and semi-arid enshrined in the Xeer tradition, and the rich conditions, the fate of Somalia’s population water knowledge found in Islam. At the and economy is intertwined with how the same time, women and men need to be country learns, adapts and changes the way equally engaged in these issues. Finally, that blue and green water are managed international support should be enabled alongside its land. 36 This includes the National Water Resources Strategy (MoEWR 2022); the Economics of Water (World Bank, 2021); the Shabelle Basin Diagnosis and Strategic Action Plan 2021 (MoEWR 2021a); Rebuilding Resilient and Sustainable Agriculture in Somalia (World Bank, 2020); and the Livestock Sector Development Strategy (MoLFR 2019). 37 This is vital given that the watershed for Somalia’s only two perennial rivers lies primarily in Ethiopia, which also has plans to develop the water resources of the Shabelle, thereby affecting downstream Somalia. November 2 0 2 3 | Edition No. 8 51 Special Focus It is imperative that Somalia explicitly education, professional on-going recognizes both blue and green water. As capacitation, and technical training, plus such it should establish policies for their research in climate smart agriculture, respective conservation, allocation and use small-scale rainfall harvesting, ephemeral according to relevant social, economic, and stream utilization, production of livestock environmental criteria. In this way, Somalia fodder and stall feeding, improved can maximize the collective benefits that it can land use, allocation criteria, and urban obtain from its waters, while also optimizing distribution. wellbeing for every drop of water used. b) Develop climate-resilient and productive farming systems. Further, given climate variabilities, it is c) Invest in farmer and livestock owner essential that the country invests in land extension services. New systems, management, including in soil health, as knowledge, and services must reach rural well as vegetation cover and forests. This will farmers and livestock owners. A mobile have a positive impact on flooding and help to temper the effects of droughts. information service should be developed, providing rural communities with early A strategic high-level prioritization is warning systems, weather information required to shape policies and approaches and news. to more practical and local (re)allocation d) Develop management tools, systems, and processes. Most likely, blue water will need principles to support the allocation and to be allocated to: (i) priority uses, including use of blue and green water. Also, link household WASH needs; (ii) livestock and supply and demand water management, meat exports; (iii) high-value urban uses and optimize the wellbeing delivered per (industry, services); and (iv) valuable and unit of water used. high value cash crop production for export. 3. Boost export revenues, and convert Unlike blue water, which is increasingly Somalia’s livestock sector into a world-class, scarce, green water is relatively abundant, high-quality animal and meat export entity. and can be harnessed more productively Livestock and meat are currently Somalia’s by smart land use, improving soil health, main export commodity. As such, they rainfall harvesting and (mobile) livestock provide the country with critical earnings to grazing. Allocation principles are useful to pay for imported food. However, the earnings guide more dynamic approaches, including from these commodity exports could be flexible reallocation that may be necessary much higher in the near future. Generating in an era of climate change (that is, avoiding more revenue is essential to pay for the fixed allocations that become hydrological anticipated increase in food imports. Mobile impossibilities in certain years). livestock-keeping has adapted to climate variabilities for centuries. Given Somalia’s To attain a blue and green water-based hyper-arid and semi-arid climate, as well as economy, it is recommended to: climate variability, pastoral livestock rearing a) Invest in research and capacity is an ideal economic activity. However, it is development. This includes academic facing constraints. 52 S om a l i a Eco n om i c Update Special Focus To generate the required future foreign that harnesses flood water (such as sponge earnings, the following is recommended: cities). By integrating the systems, it is a) Provide dedicated support to the livestock possible to optimize the use and benefits sector through research, capacity derived from water and deliver more benefits development, and veterinary services. to people, as well as increasing the resilience of big systems. b) Establish shared, supported, and regulated land routes for livestock, as well To enter into a circular economy and ecology, as feedlots near abattoirs in departure the following is recommended: locations. a) Develop policies, regulations, principles c) Reinforce good pastoral practices, and approaches to move to and enter including the protection of core breeding into a circular economy. animals through mobility. b) Identify resilience as a game-changer d) Support the sustainable use of rangeland for Somalia’s future, where ecosystem resources, with access to water supplies services are recognized, assessed, and as required by livestock-keepers. Explore integrated into rural and urban livelihood fodder production and stall-feeding systems alike. opportunities, where appropriate, c) Promote, capacitate, and support the e) Invest in conflict resolution. gradual transformation of sectors from open-ended into a circular economy 4. Enter into a circular economy and an involving ecology practices. ecology based on resilience, innovation and integrated systems. Somalia should promote d) Give the urban sector particular attention resilience, innovation, and adaptation to in moving toward circular principles and water scarce conditions. This should be a norm practices. This includes water reuse, for development and economic growth.38 dry sanitation, solar and wind-powered The extensive new investments needed in desalinization of seawater. Redefine, plan Somalia, such as water supply and sanitation and implement a new urban environment. services in rural and urban areas, provide Move from densely populated areas to an opportunity for the country to leapfrog outspread green areas, adapted to floods, into a circular economy. As such, it will and partly self-fed from urban agriculture. invest in re-use and re-cycling technologies Such an environment would be managed and approaches. Examples include: (i) dry by community leadership. sanitation rather than wasteful and costly sewerage systems based on scarce water 5. Establish robust, inclusive, and transparent resources; (ii) decentralized, highly efficient governance systems. Given the massive and cost-effective water treatment and challenges that Somalia faces in the coming supply technologies; (iii) innovative water years, the governance system should be pricing and payment systems; (iv) the use inclusive. Inclusivity effectively serves of digital technologies in regulating private and engages all people and takes into sector operators; and (v) urban development consideration gender and other facets of Much can be learned from Namibia about how to adapt to very water scarce conditions and still maintain a high level of wellbeing. The examples are many, including 38 a reuse of sewage for drinking water services; strict building codes to avoid water losses; an extremely water-efficient industry; and inter-connected dams to reduce evaporation losses. November 2 0 2 3 | Edition No. 8 53 Special Focus personal identity, such as clan. Also, all To establish an inclusive governance system, institutions, policies, processes and services the following is recommended: are accessible, accountable, transparent, and a) Elevate the categorization of the Ministry responsive to all members of society. of Energy and Water Resources to a Category A Ministry. In order to achieve food and water security, b) Link with the whole-of-society dialogue the governance system should match the process and identify and develop priority challenges linked to allocating blue and green actions for improved governance. water alongside support and regulation of c) Identify priority needs for inclusive WASH services, environmental security, governance. This may focus on urban and the productive uses of water in rainfed water and sanitation services, livestock and irrigated crop production, as well as water needs, and/or land and water for livestock, manufacturing and services. ownership concerns. Public support for new laws and policies is essential if Somalia is to become a circular, water-wise economy. 54 S om a l i a Eco n om i c Update REFERENCES Basnyat, D.B. 2007. “Water Resources of Somalia.” Technical Michalscheck, M., G. Petersen, and H. Gadain. 2016. Report No W-11. Nairobi, Kenya: FAO. 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Affairs (UN OCHA). 2023. “Somalia Humanitarian Needs WHO & UNICEF, Joint Monitoring Programme, Geneva and Overview 2023.” February. New York. 56 S om a l i a Eco n om i c Update ANNEX A1: SOMALIA REBASED GDP ESTIMATES, 2016–2022 Progress in Estimating Somalia GDP Somalia continues to make progress in producing socioeconomic data needed for policy making. The Somalia National Bureau of Statistics (SNBS) with support from international partners have made significant progress in rebuilding the national statistical system and undertaking key surveys to close the huge data gaps across the country as a result of over two decades of civil war. Some of the key surveys that have supported the production and compilation of Somalia GDP estimates in recent years include Somalia High Frequency Surveys (SHFS) Wave 1 (2016) and 2 (2017), the 2014 Population Estimation Survey of Somalia (PESS) by UNFPA, and the 2022 Somalia Integrated Household Budget Survey (SIHBS). While significant progress has been made in collecting key socioeconomic indicators, computing GDP by production or income approaches remains a challenge as production-side indicators remain unavailable. In this regard, the government with support from development partners, has been using the expenditure approach to compute GDP estimates for Somalia from 2013 to date using the available information. The SNBS published the first GDP series for the period 2013-20 in June 2021.39 This series incorporated several improvements mainly in computing final household consumption; a new average daily per capita consumption of $1.61 compared to $1.26 used in the old estimates mainly through the inclusion of consumption estimates of areas not covered by the 2017 SHFS, 2.8 percent annual population growth rate from the 2014 PESS compared to 2.9 percent used previously, and average CPI used was a weighted average of FGS and Somaliland CPIs rather than FGS only CPI.40 SNBS published its second GDP report in June 2022 for the period 2013-21. This incorporated minor improvements on government consumption expenditure with improved coverage of Federal Member States and revised gross capital formation to reflect updated source data from the UN Comtrade database. The third GDP report published in June 2023, covered the period 2016–2022.41 It rebased the previous series to 2022 current prices from 2017 following the production of 2022 Somalia Integrated Household Budget Survey (SIHBS). The SIHBS provided a much more comprehensive measure of household consumption compared to previous estimates. The daily consumption per capita from 2022 SIHBS was estimated at $2.34 compared to the previous $1.61 using the 2017 SHFS Wave 2. In addition, the rebased GDP series included revised gross capital formation which incorporating Central Bank of Somalia (CBS) import data.42 39 https://www.nbs.gov.so/gross-domestic-productgdp/ 40 Exchange rate adjustments to the US$ are done as both FGS and Somaliland CPI data is collected in local currency. 41 https://nbs.gov.so/wp-content/uploads/2023/07/Somalia-Gross-Domestic-Product-Report-2022-1.pdf 42 A detailed methodology on the compilation of Somalia GDP estimates as well as progress in the series’ revisions is provided in the World Bank Somalia Economic Update, editions 4 (August 2019) and 7 (June 2022). November 2 0 2 3 | Edition No. 8 57 Annex Recent Improvements on Somalia GDP Series The SNBS rebased the previous GDP series for the period 2016-22 and published the report in June 2023.43 The rebased series incorporates several improvements mainly in computing final household consumption based on the new 2022 SIHBS as well as economic developments in 2022. The publication of the 2022 SIHBS was significant as it not only addressed the existing data gaps by providing key socioeconomic indicators to monitor household welfare and measure poverty but also, provided better estimates of household consumption, a key input for GDP estimation. Like other standard countries, for the first time, Somalia used a household budget survey to estimate household consumption, moving away from the high frequency household budget surveys (HFHBS) used in the previous estimates.44 The 2022 SIHBS incorporated improved coverage with detailed consumption patterns data collected from over 7,000 households and provided a much more comprehensive measure of household consumption. The resulting daily consumption per capita of $2.34 was higher compared to the $1.61 from the 2017 SHFS Wave 2 used in the previous estimates. The improvements in the rebased GDP estimates include: • A new average daily per capita consumption of $2.34 compared to $1.61 used in the previous estimates. This was mainly from the 2022 SIHBS covering over 7,000 households. As a result, the base year changed from 2017 to 2022 for the real GDP estimates. • Gross fixed capital formation estimates incorporated imports’ data, particularly construction and machinery, produced by the Central Bank of Somalia as well as updated UN COMTRADE data. • Average CPI used is a weighted average of the Somaliland and Mogadishu CPI and is a deflator for many variables across GDP components. However, the CPI weights used are based on the 2017 Somalia High Frequency Survey as an update using the 2022 SIHBS is yet to be undertaken. These new improvements, particularly the daily per capita consumption increased the size of rebased nominal GDP and real GDP by an average of 39 percent and 67 percent respectively in the period 2017-21, compared to the previous estimates. Figure A1.1, panel a, shows the nominal GDP changes while panel b shows annual GDP growth rate changes. Other expenditure GDP components are based on actual data observed and updated each year. Consequently, changing the level of GDP naturally changes the value of other key indicators in policy making. For example, the new higher GDP estimates result to lower shares (as a ratio to GDP) in government revenue and spending, while improving the debt burden compared to the previous estimates (see Figure A1.2, panel a-d). https://nbs.gov.so/wp-content/uploads/2023/07/Somalia-Gross-Domestic-Product-Report-2022-1.pdf 43 The HFHBS surveys posed critical challenges including data depth, geographical coverage, sampling techniques, and comparability. Moreover, the surveys provided a 44 point estimate for the daily per capita consumption which was then extrapolated using annual CPI and population to compute values for the other years. 58 S om a l i a Eco n om i c Update Annex Figure A1.1: GDP estimates changes due to higher per capita daily consumption estimate a. Nomibal GDP, US$ billions b. Real GDP growth rate, 2018-20 12.0 5.0 4.0 10.0 3.0 8.0 2.0 6.0 1.0 0.0 4.0 -1.0 2.0 -2.0 0.0 -3.0 2014 2015 2016 2017 2018 2019 2020 2021 2018 2019 2020 2021 HFS Wave-2 2017 ($1.61/day) SIHBS 2022 ($2.34/day) HFS Wave-2 2017 ($1.61/day) SIHBS 2022 ($2.34/day) Figure A1.2: Resulting changes in other key indicators, percent of GDP a. External debt burden b. Domestic revenue 120 4.0 100 3.0 Percent of GDP 80 Percent of GDP 60 2.0 40 1.0 20 0 0.0 2014 2015 2016 2017 2018 2019 2020 2021 2014 2015 2016 2017 2018 2019 2020 2021 HFS Wave-2 2017 ($1.61/day) SIHBS 2022 ($2.34/day) HFS Wave-2 2017 ($1.61/day) SIHBS 2022 ($2.34/day) c. FGS Total spending d. Transfers to FMS 8.0 1.5 6.0 Percent of GDP Percent of GDP 1.0 4.0 0.5 2.0 0.0 0.0 2014 2015 2016 2017 2018 2019 2020 2021 2014 2015 2016 2017 2018 2019 2020 2021 HFS Wave-2 2017 ($1.61/day) SIHBS 2022 ($2.34/day) HFS Wave-2 2017 ($1.61/day) SIHBS 2022 ($2.34/day) Source: World Bank staff calculations November 2 0 2 3 | Edition No. 8 59 Annex Towards a Production Approach GDP estimates in 2024 To address existing data gaps and rebuild the national statistical system, the SNBS continues to undertake critical surveys including the recently published Somalia Integrated Household Survey in February 2023. Preparation for an Integrated Business Establishment Census (IBEC) is at an advanced stage and field work is expected to start in November 2023 and be completed by December 2023. This will be followed by a business establishment survey of which the preparation process is underway. Furthermore, the SNBS is upgrading its CPI calculation and price data processing system to accommodate data from other cities across FMSs (the current official CPI is based only on price data from Mogadishu) and will use the 2022 SIHBS data to update the CPI basket.45 Once completed, these surveys will not only fill critical data gaps but also will enable compilation of new GDP estimates by production approach hence a more accurate estimate of GDP than is possible using the currently available data. As a result, the SNBS will be able to begin following the conventional standards of annual revision of GDP statistics (with periodic national accounts rebasing) to reflect long-term structural changes in the economy. These surveys are supported through the Somali Integrated Statistics and Economic Planning Capacity Building project, a World Bank IDA project. 45 60 S om a l i a Eco n om i c Update @Mohamed A. Bashir