Somalia's economy is projected to grow by 3.1 percent in 2023, an increase from the 2.4 percent growth seen in 2022. This recovery has been attributed to improved weather conditions and policy reforms implemented by the government aimed at reaching the Heavily Indebted Poor Countries (HIPC) Completion Point.
The latest Somalia Economic Update indicates that medium-term growth will remain modest, with projections of 3.7 percent in 2024 and 3.9 percent in 2025. However, this growth is subject to risks such as climatic shocks, security threats, and global economic fluctuations. The Federal Government of Somalia (FGS) has maintained broad-based fiscal stability, with inflationary pressures easing due to declining food prices, better weather, and lower global commodity prices.
"Addressing climate challenges and risks is essential for sustainable and resilient economic growth," stated Kristina Svensson, World Bank Country Manager for Somalia. "There is an urgent need for the Government of Somalia to support sustained and long-term growth, anchored on macroeconomic stability, broad-based structural reforms, and longer-term resilience to climate change at the whole-of-economy level."
Growth has been supported by favorable rains in 2023 that led to a stronger-than-expected rebound in the agriculture sector. The livestock sector also recovered quickly with significant increases in exports. Additionally, domestic revenue saw robust growth despite remaining insufficient to meet rising expenditure needs. Improved performance by Somali banks signals increasing confidence in the financial sector.
A special focus section of this economic update explores how climate action can drive economic growth for Somalia. The report suggests that proactive investments in resilience and preparedness are needed rather than continuing heavy reliance on humanitarian aid. Investments should target disaster risk management, social protection, and more resilient rural livelihood systems.
The report projects a modest medium-term growth outlook based on continued political stability and reduced security risks. It recommends scaling up public spending in energy, transportation, education, and health sectors to sustain this growth path while maintaining macroeconomic stability through sound policies.
External trade is expected to improve if favorable weather conditions persist and the global environment strengthens. Financial sector reforms are anticipated to bolster confidence and deepen financial markets further. Reforms in tax policies are expected to mobilize additional domestic revenue.
"Somalia’s economic outlook remains positive with economic growth set to accelerate at a modest pace," said Abdoulaye Ouedraogo, World Bank Economist and author of the report. "Completing the HIPC process and accession to the East African Community should boost investor confidence and support regional integration."
Policy recommendations for post-HIPC environments include managing budget deficits through prudent fiscal policy—strengthening domestic resource mobilization—and advancing public finance management reforms. Strengthening debt management legislation is crucial alongside prioritizing concessional financing sources.
Advancing discussions on federalism could enhance state stability which would improve business environments and strengthen public service delivery systems. Overreliance on external grants poses risks to macroeconomic stability especially if there are disruptions in grant flows leading potentially substantial debt arrears accumulation.