IMF Cuts Somalia’s Economic Growth Projection for 2023

The International Monetary Fund (IMF) has downgraded its 2023 economic growth forecast for Somalia but expectes average inflation to decline to 4.2% in 2023 as commodity prices recede.

The latest projections come after the IMF team discussed with the Somali authorities in Nairobi on March 7-14, 2023, and reached a staff-level agreement on the fifth review under the Extended Credit Facility (ECF) arrangement.

Somalia has continued to face acute food insecurity in some areas due to persistent drought. Its officials in collaboration with the UN system are delivering assistance to close to 7.3 million people.

“Nonetheless, half of the population would face acute food insecurity by June 2023 if the April-June rainy season disappoints and financing of humanitarian support is not adequate,” IMF team leader Laura Jaramillo said.

The drought coupled with slowing global growth were the factors behind Somalia’s slow economic activity last year with the IMF projecting the GDP growth in 2022 to drop to 1.9 percent from 2.9% in 2021.

“Economic activity has been weighed down by the drought and slowing global growth, and risks remain elevated,” Jaramillo said, announcing revised growth estimates for this and last year.

The GDP growth estimate for 2022 and projections for 2023 have been downgraded by ¼% to 1.7% and 2.8%, respectively, due to the prolonged drought and subdued remittance inflows, the Fund says.

IMF, however, expects the average inflation that reached 6.8% in 2022 due to high food and fuel prices to decline to 4.2% in 2023 as commodity prices recede.

“Near-term risks are elevated, including a worsening of the food crisis if healthy rains do not resume in 2023 or if commodity prices rise further,” Jaramillo added.

The Somali authorities plan to submit to Parliament a Supplementary Budget for 2023 which Jaramillo said “presents a balanced fiscal position based on realistic revenues.”

The Supplementary Budget will accommodate expenditure that is supportive of growth, security, and development – including the hiring of new teachers, as per the IMF Team leader who stated that “External budget support remains crucial.”

Somalia is enduring five consecutive seasons of failed rains, the longest in recent memory, which has left 5 million people in acute food insecurity and nearly 2 million children at risk of malnutrition. The United Nations on Monday said it needs more than US$ 2.6 billion to meet the priority needs of 7.6 million people in 2023.