Somalia’s economic growth is expected to slow to 2.3 percent in 2026, as sharp reductions in foreign aid, recurring climate shocks, regional conflict and domestic political pressures weigh on activity, the International Monetary Fund said.
The IMF forecast that growth would gradually recover to 2.7 percent in 2027 and reach 4 percent over the medium term, provided the country sustains its reform agenda and receives continued support from international donors.
The assessment followed an IMF staff mission led by Ran Bi, which held discussions with Somali authorities in Nairobi from September 21 to October 1 as part of the 2026 Article IV consultation.
The findings are preliminary and will form the basis of a report that is expected to be presented to the IMF Executive Board, subject to management approval.
Inflation and humanitarian pressures
The IMF said Somalia is confronting a combination of global and domestic challenges that have weakened economic activity, increased inflation and food insecurity, and placed pressure on public finances.
Inflation is projected to reach 6.5 percent in 2026, partly because of prolonged drought conditions and disruptions to global trade.
The Fund warned that the country’s external position remains vulnerable despite resilient remittance inflows, which continue to provide an important source of household income and foreign exchange.
The IMF identified several major near-term risks, including more severe climate shocks, renewed regional conflict, further reductions in foreign aid and domestic political challenges. It said sustained donor support would be particularly important if these risks materialize.
Fiscal reforms remain a priority
The Fund said Somali authorities have continued efforts to increase domestic revenue, although progress has been slowed by the country’s shock-prone operating environment.
Spending discipline has helped contain the fiscal deficit, while domestically financed social spending has remained broadly on track.
The IMF projects an overall fiscal deficit of 0.9 percent of GDP in 2026. For 2027, it expects the deficit to narrow to 0.5 percent of GDP, based on conservative assumptions regarding budget-support grants.
The Fund urged Somalia to accelerate revenue reforms, including stronger enforcement of customs and income taxes, the harmonization of sales taxes between the federal government and member states, and increased non-tax revenue collection.
The IMF said the authorities should work toward fully covering operational expenditure through domestic revenues in the near term.
It also encouraged continued improvements in public financial management, including stronger expenditure controls, better management of fiscal risks linked to public-private partnerships and the introduction of multi-year commitment controls.
A comprehensive public financial management action plan covering 2026 to 2030 is being finalized. The Fund cautioned, however, that reform priorities should be matched with the government’s capacity to implement them.
Somalia is also making progress on debt management and transparency, while preparation continues for a competitive licensing round in the petroleum sector.
Careful approach urged on currency reform
The IMF praised the Central Bank of Somalia’s efforts to strengthen financial supervision and expand access to financial services.
It called for continued work to protect financial stability, improve oversight of payment systems and upgrade financial infrastructure.
The Fund also stressed the importance of strengthening Somalia’s framework for combating money laundering and terrorist financing. Such reforms, it said, would help protect the integrity of the financial system and support the restoration of correspondent banking relationships.
Currency reform remains a national priority, but the IMF advised the authorities to proceed cautiously and only after key prerequisites are in place.
Longer-term growth agenda
The IMF said Somalia’s 2025–2029 National Transformation Plan provides a framework for promoting more inclusive and resilient, private-sector-led growth.
Recommended priorities include governance reforms, a better business environment, improved access to finance, stronger trade integration and greater domestic value addition.
The Fund also highlighted the need to diversify exports and ensure sound governance and operations at the Somali Development and Reconstruction Bank so it can serve underserved productive sectors.
Investment in education, climate resilience and reliable economic statistics will also be essential, the IMF said.
Despite the difficult outlook, the Fund noted that Somalia has maintained economic stability and continued to advance important reforms.
It expressed appreciation to the federal government, the central bank, government agencies, development partners, civil society and private-sector representatives for their cooperation during the consultation.
