The International Monetary Fund has agreed to postpone Somalia’s loan facility deadline by at least three months to ease the country’s access to budget funds from external lenders.
The decision, whose implementation requires IMF approval board, came after senior officials at the lender met with new President Hassan Sheikh Mohamud this week along with other top Somali officials.
The IMF said at staff level that it has with the Federal government reaches agreement on the second and third reviews of the Enhanced Credit Facility (ECF), a key privilege granted to Somalia to tap into external lenders as the government proceeds with governance reforms.
This one Facility threatened a full shutdown as the IMF gave up by May 17 this year. It would have meant further revenue shortfalls.
According to the IMF, failure to meet ECF conditions and thus a shutdown would increase economic risks for Somalia.
“Near-term risks include development of the pandemic, prolonged drought or new climate shocks, resurgence of desert locusts, security risks and additional pressure on international food and energy prices,” the lender said in a statement.
“Failures or delays in budget support grant disbursements would also pose risks to the budget and the program.”
Two weeks ago, the government of Somalia asked the IMF to postpone the proposed deadline for a key borrowing facility after failing to hold the elections on time.
Finance Minister Dr. Abdirahman Duale Beileh and Somali Central Bank Governor Abdirahman Mohamed Abdullahi jointly asked the IMF to extend the deadline to August 17, 2022, three months after the deadline given by lender Mogadishu.
“In view of o f the automatic expiration of the ECF (Enhanced Credit Facility) commitment on May 17, 2022, we hereby request a three-month delay in the automatic expiration of the ECF arrangement until August 17, 2022,” they wrote in a letter dated April 28 to Kristalina Georgieva, Managing Director of the IMF.
“The additional three months will give the new government ample time to confirm the policies, reform agenda and conditionality that the ECF program will impose on the next 12 months.”
But Somalia managed to complete the presidential election on May 15, just two days before the deadline. However, officials argue that the new president will need at least three months to settle in and adjust to the reform program as requested by the IMF.
Somalia was granted the expanded credit facility on March 25, 2020 , which the IMF Executive Board routinely approves for countries with persistent balance of payments problems. It aims to support low-income countries, particularly those emerging from conflict but with high levels of debt.
The program was part of the Heavily Indebted Poor Countries (HIPC) initiative, which is reducing the country’s debt to $557 should be millions out of $5.2 billion as long as it completes certain reforms, including fighting corruption, increasing local revenues and passing good governance laws, and holding timely elections.
Somalia would millions in financial support will also benefit from the three-year $395.5 to support reforms.
But as the elections initially scheduled for March 2021 dragged on, the IMF warned in March this year, he could end the program.
As it stood, the lack of an adequate government would jeopardize the country’s budget support from the IMF and delay debt relief programs.
The IMF had indicated that Somalia needs to continue changing its legal systems, including a payroll system, eliminating ghost workers, enacting electoral laws, boosting local tax revenues and fighting corruption.
On Thursday, the IMF’s Laura Jaramillo, the assistant director at the Department of Financial Affairs of the IMF, which led the mission to Somalia, the reform program “remains on track with continued progress on key reforms, including domestic revenue mobilization, strengthening public financial management, deepening the capacity of the CBS (banking supervision) and improving of governance.”
“Supporting development partners, both in terms of funding and capacity building, is essential for the successful implementation of the authorities’ economic and structural reform strategy,” she said.
The lender said Somalia managed, s to maintain macroeconomic stability despite the Covid-19 pandemic, mainly because it was able to access the Special Drawing Rights under the ECF initially in 2021.
The country’s economic growth is expected to be in 2.7 percent in 2022, “driven by private consumption, supported by remittances,” the IMF pr objected.
But as the country fights al-Shabaab and imports expensive food, its inflation could also rise 8.5 percent increase.