This Budget Policy Brief (BPB) is the third assessment of the macroeconomic and fiscal performance of Somalia through the third quarter of 2024 (Q3). It covers the developments of the principle macroeconomic indicators; including economic growth, inflation, the external debt situation of the country, and the Federal Government of Somalia (FGS) and Federal Member States’ domestic revenue mobilization and expenditure performances. The Brief is organized into the following sections: Recent Macroeconomic developments; Government Budget Operations; Fiscal developments outturn; comparison of fiscal operations; Federal Member States financial operations. The analysis underlying the Budget Brief has been facilitated by data made available by the FGS Ministry of Finance, and other public agencies.
Following this Preface and Key Highlights and Messages, the content of the Brief is organized into five (5) sections as follows:

• Recent Macroeconomic Developments, Federal Government of Somalia Operations,
• FGS fiscal developments outturn for the third quarter of 2024,
• FMSs financial operations for the first half of the year,
• The special Issue coverage: Status of Fiscal Federalism in Somalia and Way Forward, and
• The findings and Recommendations of the Budget Policy Brief # 3.
  This Budget Policy Brief was prepared by staff and associates of the Horn Economic and Social Policy Institute (HESPI), and special thanks are due to all the contributors and particularly the primary contributor to the special coverage on the status of Fiscal Federalism in Somalia and the major challenges and issues to advance inter-governmental fiscal relations, Dr. Hodan S. Isse.

Key Highlights and Messages

• Somalia’s economy remained stable and resilient with a 3.7 percent growth in real GDP, through the year ended on the 3rd quarter 2024. Although still low, if sustained, this rate of economic growth creates opportunities for the country to provide basic service for social sectors, infrastructure, and meeting its massive security needs. The economic growth was mainly driven by agriculture, telecommunication, and remittances. Per the National Transformation Plan (NTP), there is need to undertake sustainable economic transformation, and social and human capital transformation, so as to create employment for the youth and improve households’ welfare.
• Somalia’s average inflation rate remained stable in low single digits for the first three quarter of 2024. This implies steady purchasing power for households, and sustained price stability is envisaged to further facilitate the decline in poverty from 69 percent in 2021 to 54.4 percent in 2022.
• Due to the achieved HIPC completion debt-to-GDP ratio declined to 5.08 percent in 2024, and accordingly improved the potential for investment in the critical economic sectors, including social sector investment: and would facilitate growth, employment, and household income and improved Somalia’s macroeconomic stability.
• Under the current tight fiscal space, social sector spending was limited albeit growing from a very base. During the first three quarter of 2024, the government modestly increased allocations to infrastructure; health, and education and the contribution to the economic sector including agriculture was low below with the quarterly share declining from 16 percent in the second quarter to 14 percent in the third quarter. There is a need to improve the share of social and economic sectors in total expenditure and to balance these in relation to security; and other critical sectors.
• Fiscal Federalism implementation remains a key challenge in Somalia. There is a lack of agreed upon framework governing the financial relations between the different levels of government, which includes equitable resource sharing and intergovernmental transfers. Increased transfers of equitable shares of revenue, budget support and grants to sub-national level is important as service delivery takes place closer to the households and, therefore, increasing access to services. However, FMS should be able to raise more of their own revenue to support sustainable implementation of government functions.
• The government’s recurrent expenditure remains high and especially with regard to the limited domestic revenue mobilization. For example, the wage bill of the FGS continues to increase year-over-year and evidences the need to improve its oversight and control to ensure affordability, equity pay and to create fiscal space to adequately finance macro-critical policies to address some of the structural drivers of food insecurity, climate change, and infrastructure spending.

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