The budget approved by Somalia’s parliament this week is in line with fiscal reforms the government committed to when it entered an International Monetary Fund programme in May.
Somalia is now on its second 12-month IMF staff-monitored programme after decades of war and turmoil, and adherence to the IMF’s fiscal framework opens the door for grants and concessional funding from international financial institutions.
The $274 million budget approved on Wednesday includes measures expected to boost domestic revenue collection by $20-$25 million.
They include the introduction of sales and corporate income taxes for telecommunications and the removal of income tax exemption for lawmakers, said Mohammed Elhage, who leads the IMF’s Somalia work.
“These are very important signals.”
“From September until now, we see a strong commitment to reform. The authorities are more engaged on what needs to be done.”
The budget sees the state collecting about $156 million in domestic revenue and about $118 million in grants.
The Horn of Africa nation is recovering from decades of war, and al Shabaab Islamist militants remain a threat.
The new budget is still dwarfed by contributions from donors, who last year spent about $1.5 billion on food aid, health and sanitation.
Observers say putting a proper budget into place and having parliament pass it is an important step.
“If the IMF gives the thumbs-up, that tells you that the government is starting to deliver on revenue collection,” said a Western diplomat. “If they can get debt relief, that is the pot of gold at the end of the rainbow.”
Credit from the IMF would offer the central government leverage over the federal member states, the diplomat added.
The states are at odds with Mogadishu over a range of issues, including the crisis between Qatar and other Gulf states.
Somalia’s external debt is about $5.2 billion, according to the IMF. It has not made a service or amortisation payment since civil war broke out more than 25 years ago.
The IMF said this week that economic growth is set to quicken to 2.5 percent in 2018 from 1.8 percent this year, when drought and security issues kept it below the IMF’s forecast of 2.5 percent.
