The International Monetary Fund (IMF) said it has reached a staff-level agreement with Somalia on the fifth review under the extended credit facility (ECF) arrangement.
The IMF said in a statement released Monday that the agreement will allow the lender to release some funds to Somalia once approved by the IMF board.
IMF mission chief Laura Jaramillo said despite significant challenges, including from the continued severe food crisis, Somalia has maintained strong reform momentum and program performance has been satisfactory.
Jaramillo said economic activity has been weighed down by the drought and slowing global growth, and risks remain elevated. "Timely financing and capacity development support from development partners is essential for the successful implementation of the authorities' reform strategy," she said.
The IMF downgraded the gross domestic product (GDP) growth estimate for 2022 and projections for 2023 by a quarter percent to 1.7 percent and 2.8 percent, respectively, due to the prolonged drought and subdued remittance inflows.
It said average inflation reached 6.8 percent in 2022 due to high food and fuel prices and is expected to decline to 4.2 percent in 2023 as commodity prices recede.
According to the IMF, 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 said the authorities are committed to continuing to improve revenue collection and make room for priority spending while containing discretionary expenditure pressures in 2023.
She said the government will submit to parliament a supplementary budget for 2023 that presents a balanced fiscal position based on realistic revenues.
Jaramillo said contributions from Somalia's partners to the Somalia Country Fund are critical to ensure the smooth delivery of IMF technical assistance to support the goals of the ECF-supported program and the Heavily Indebted Poor Countries (HIPC) Initiative, a global debt forgiveness process.
"The authorities reached debt relief agreements with most Paris Club members and the Kuwait Fund for Arab Economic Development (KFAED) and continue to seek agreements with other bilateral creditors," Jaramillo said.