IMF says new multi-donor fund will boost Somalia’s development

The Somalia Trust Fund aims at improving macroeconomic institutions, policies, and data systems and will provide more than $9 million worth of technical assistance and training to the country over the next three years.

The IMF said commitments to the fund have already been made by the Arab Fund for Economic and Social Development ($3 million), the Canadian Department for Foreign Affairs, Trade and Development ($2.5m), and the UK’s Department for International Development ($1.1m). Efforts are under way to “secure additional contributions to fully finance the trust fund’s budget”, the IMF said.

In addition, the IMF said its legal department will draw up blueprints for anti-money laundering and fiscal legislation for Somalia over the coming year.

The IMF formally recognised the establishment of a federal government in Somalia in April 2013 as the country emerged from a long period of civil war. “Building on the IMF’s long experience in fragile and post-conflict countries, the capacity development program for Somalia under the trust fund will comprise technical assistance, training, and professional attachments of Somali officials in counterpart institutions in other countries in the region,” the IMF said.

According to the IMF, a fact-finding mission to Somalia in 2013 found “a very active private sector resurgence in the services industry, driven mainly by a return of diaspora Somalis, notably in the communications, construction, and money transfer sectors”.

“In the absence of licensed commercial banks, a number of informal financial institutions have evolved in Somalia, most of which provide shadow banking services on a nationwide basis and deal in money transfer operations,” the IMF said. “In particular, money transfer companies have spread rapidly throughout the country, and are now estimated to handle more than $2 billion in remittances and considerable more in commercial trade.”

A World Bank overview of Somalia published in October 2014 said that as the country “finalises a permanent constitution and prepares for national elections in 2016”, Somalia is “likely to face continued instability as new stresses emerge”. However, the bank said “the new federal government has growing support from donors who are likely to increase assistance for further peace-building and state-building activities” under a federal government-backed compact that sets out the critical priorities for stability and sustainable economic development in the country.

The bank has pledged to work with authorities in Somalia to “develop sound regulatory frameworks” in the finance, extractive industries and ICT sectors (49-page / 10.2 MB PDF).

The bank said: “Increased compliance with international regulatory standards can unlock investment, facilitate increased integration in regional and global economies, and build confidence in the role of the state in managing the economy. Policy and standards-setting are key functions of effective government and can generate confidence within Somalia's business community if properly consulted, prepared and implemented.”