On Tuesday, June 23, 2020, the World Bank Board of Directors approved a $55 million International Development Assistance (IDA) grant to support Somalia’s economic recovery. Somalia’s economic policy reforms are geared towards strengthening fiscal management and promoting inclusive private sector-led growth.
The new grant would help cushion the impacts of the COVID-19 (coronavirus) pandemic on Somalia’s economy. This would promote its continued policy reforms, earlier supported by the bank’s Development Policy Financing (DPF) in February.
Also, the objective of the supplemental financing is to close an unexpected financing gap caused by flooding, and infestation of locusts while minimizing the effects of the ongoing economic crisis on the continued implementation of reforms.
According to Dr Abdirahman Beileh, the country’s Finance Minister, the revised budget expands cash transfers to vulnerable households and provides a substantial increase in grants to subnational governments to help them respond to the pandemic in the face of declining revenue. He added that the new fund would aid in plugging the country’s public expenditure gap caused by the 29 domestic revenue shortfall and 2.5 percent GDP contraction already recorded in 2020.
In a statement, Hugh Riddell, World Bank Country Manager for Somalia explained that “the budget support will help protect lives and livelihoods and strengthen the capacity of Somali institutions to respond to the triple crisis of COVID-19 pandemic, locust invasion and flooding that threatens to derail Somalia’s reform program and its emergence from fragility.”
The country is one of the Heavily Indebted Poor Countries (HIPC) in the world making it eligible for the new grant. On March 25, 2020, the World Bank and the International Monetary Fund approved Somalia’s eligibility for the HIPC Initiative.
The HIPC is a group of 39 developing countries with high levels of poverty and debt overhang which are eligible for special assistance from the International Monetary Fund and the World Bank. The initiative is used to remove the restrictions on economic growth and poverty reduction on countries while providing access to IDA instruments to help mitigate the impact of multiple crises.