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Somalia Economic Outlook
Real GDP growth was an estimated 2.9% in 2018. Supply-side contributors were mainly agriculture, livestock, and financial and telecommunications services. Demand-side contributors were largely government and private consumption, which together constituted about 83% of GDP. The current account deficit hurt growth as it widened to an estimated 7.2% in 2018, driven by rising consumer and capital goods imports, particularly food imports due to persistent droughts; higher oil prices; and Saudi Arabia’s ban on Somali livestock imports, following the Rift Valley fever outbreak.
The budget remained balanced in 2018, through enhanced domestic revenue collection and efficient public expenditures. Somalia is classified as being in debt distress, with debt estimated at 65% of GDP in 2017. Monetary policy remained inactive, while foreign exchange market interventions ceased. Inflation remained in the single digits, at an estimated 5.1% in 2018, attributed to higher food prices following adverse weather conditions.
Tailwinds and headwinds
Real GDP growth is projected to be 3.5% in 2019 and 2020. Resolving the debt situation by 2019–20, conditioned on satisfactory performance under the International Monetary Fund Staff Monitoring Program, could also restore investor confidence.
Downside risks include slower agricultural growth due to May 2018 floods, continuing insecurity, and adverse weather shocks to rain-fed agriculture and livestock trade.
Key challenges include infrastructure constraints, weak state institutions and capacity, weak public financial management systems, continued insecurity, limited resilience to environmental extremes, and large arrears to international financial institutions. Somalia lacks the infrastructure to provide basic services, including security, health, water, education, energy, and transport because so much infrastructure has been damaged and destroyed by conflict. The civil war also had a devastating effect on institutions and governance capacity. The public financial management system still faces challenges of transparency, ability, and legitimacy, which has delayed the startup and implementation of projects. Somalia remains insecure due to lack of effective law enforcement mechanisms; high unemployment, especially among young people; and incursions by Al-Shabaab and ISIS insurgents, among others. Floods and droughts have reversed many of the social and development gains made. The country’s weak institutional and human capacities pose a challenge to speedy access to debt relief from international financial institutions.
Key opportunities include a vibrant private sector; a diaspora willing to invest in the country; regional integration; import substitution and export promotion; nascent agricultural, agribusiness, and fishing industries; and a young population.
Somalia is endowed with entrepreneurs who have been able to flourish in the conflict-ridden country, and the Somali diaspora remains committed to investing in economic and social reconstruction. Somalia also has the potential to be a regional economic hub due to its strategic geographic location and having the longest coastline in Africa. The country’s huge trade deficit is an opportunity for Somalis to produce for domestic and international markets and to reduce dependence on imports. The country is also endowed with huge agricultural and aquaculture production and processing potential. Over 70% of Somalia’s population is under age 30 and needs to be well managed to become a potential youth dividend.