Somalia: Economic Outline

Economic Indicators

Somalia grapples with recurring shocks amidst widespread fragility, conflict, and violence. Climate-related crises like droughts, floods, and locust infestations, coupled with fluctuating international commodity prices and heightened insecurity, have disrupted the country's growth path and hindered progress away from fragility. Over the period of 2019 to 2023, growth has been modest, averaging only 2% annually, with an average negative real GDP per capita growth of 0.8%. In 2023, favorable rains bolstered agricultural output, alleviated food insecurity, and bolstered private consumption. Real GDP is estimated to have expanded by 3.1% in 2023, matching population growth, up from 2.4% in 2022. Real GDP growth is anticipated to accelerate from 3.7% in 2024 to 4% in 2026 (World Bank data).

On December 13, 2023, Somalia reached a significant milestone by attaining the Historic HIPC Completion Point. Subsequent to this achievement, Somalia obtained complete and irreversible debt relief amounting to USD 4.5 billion for the nation. Consequently, the external debt was projected to be less than 6% of GDP in 2023, a notable decrease from 64% in 2018 (World Bank). In 2023, the federal government achieved a modest surplus, yet faces ongoing fiscal challenges due to limited domestic resource mobilization. Although domestic revenue mobilization improved to 2.8% of GDP from 2.5% in 2022, it still falls short of the country's development needs. Public spending is primarily allocated to personnel costs, with minimal investment in human capital and infrastructure, primarily reliant on grants. The approved 2024 budget targets a modest overall fiscal deficit of 0.3 percent of GDP. Inflation pressures abated in 2023, buoyed by improved agricultural performance and declining commodity prices. However, overall inflation remained relatively stable at 6.1% compared to 6.8% in 2022. Favorable rainfall enhanced agricultural production, leading to lower local staple food prices, with food inflation averaging 0.7% in 2023, down from 13.9% in 2022. The anticipated recovery in agricultural production and exports, alongside continued moderation in global commodity prices, is expected to sustain low inflation in 2024 (World Bank). As per the IMF, significant reforms are underway to enhance domestic revenue mobilization. These reforms include modernizing customs operations, implementing a new income tax law, and boosting revenue collection from major enterprises, notably in the telecom sector. Efforts persist in fortifying public financial management, which involves streamlining business procedures and enhancing debt management capabilities. Additionally, initiatives are in progress to integrate all employees into the payroll system, with plans to enforce the Pay and Grade policy. Key challenges include infrastructure constraints, weak state institutions and capacity, weak public financial management systems, continued insecurity linked to incursions by Al-Shabaab and ISIS insurgents, limited resilience to environmental extremes.

The economic growth is too weak to significantly reduce the widespread poverty: as per the World Bank, projections derived from GDP per capita growth indicate a rise in poverty from 71% in 2017 to 73% in 2023, using the 2017 poverty threshold. As per the 2022 Integrated Household Budget Survey, poverty rates are most pronounced among the nomadic community. However, owing to Somalia's significant urbanization, the majority of the impoverished reside in urban regions. Unemployment rate is high, estimated at 19.2% in 2023 by the World Bank, and labor force participation rates are notably low, especially with significant gender disparities. Merely one-third of men and a mere 12% of women are engaged in the labor market. Poverty levels remain high and pervasive, exacerbated by recurring shocks that heighten the risk of more individuals slipping into poverty. The country’s GDP per capita (PPP) was estimated at only USD 1,711 in 2022 by the World Bank.

Monetary Indicators	2019	2020
Somali Shilling (SOS) - Average Annual Exchange Rate For 1 GBP	n/a	33,026.94

Source: World Bank - Latest available data.

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Latest Update: May 2024