In December 2023, Somalia reached theHeavily Indebted Poor Countries (HIPC) InitiativeCompletion Point, marking a significant milestone in its development. With it, Somalia achieved debt service savings of $4.5 billion and got access to critical additional financial resources that will help Somalia strengthen its economy, reduce poverty, and promote job creation. As a result, Somalia’s external debt fell from 64% of GDP in 2018 to less than 6% of GDP by end 2023, improving debt sustainability. Despite multiple climatic shocks and complicated security situation, Somalia maintained progress on structural reforms and implemented thirteen of fourteen HIPC Completion Point triggers. In addition, Somalia maintained a track record of sound macroeconomic management as evidenced by the satisfactory implementation of the International Monetary Fund (IMF) Extended Credit Facility (ECF) program. The Executive Board of the IMF completed the 6thand final review of the ECF program and considered a new 3-year ECF arrangement to start in January 2024 to support Somalia’s post-HIPC economic agenda.
Political relations in the region are experiencing dynamic change, with new opportunities for Somalia to benefit from regional trade integration as it became the eighth member of the East African Community at the end of 2023.As Somalia moves out of fragility, it needs to gradually transition from relying on humanitarian aid to sustainable development approaches.
Economic Development
As Somalia continues to rebuild economic governance institutions, it has several opportunities—rapid urbanization, the growing use of digital technologies, planned investments in energy, ports, education, and health—so building resilience to shocks is a priority to support economic growth and job creation. However, severe droughts, floods, locust infestation, the pandemic, volatile global prices, as well insecurity and conflict have slowed the transition from fragility. Real GDP growth has been low and volatile, averaging only 2% per year in 2019–23 while real GDP per capita averaged -0.8% per year.
The economy is expected to record GDP growth of 3.1% in 2023 as the country emerges from the severe 2020/23 drought. Favorable rains boosted agricultural production and exports, reducing food insecurity, and supporting private consumption. Though improving, net exports were a drag on growth because the economy remained heavily import-dependent as conflict has destroyed the economy’s productive capacity. The trade deficit, estimated at 59% of GDP in 2023, was financed by official grants and remittances.
Repeated shocks have eroded households’ assets and purchasing power, increasing the risk of more people falling into poverty. In 2022, an estimated 55% of the Somali population lived below the national poverty line. According to the 2022 Integrated Household Budget Survey, poverty rates are larger among the nomadic population, however, due to the country’s high urbanization, the majority of the poor are in urban areas. Labor force participation rates are exceptionally low with significant gender gaps. Only one-third of men and 12% of women participate in the labor market. Almost half of those employed are living below the poverty line, indicating that jobs are of low productivity. Therefore, accelerated momentum in building institutions and developing resilience is fundamental for growth, poverty reduction, and transition from fragility.
Last Updated:Feb 26, 2024
