Page 13 - Azerbaijan State University of Economics

Hashim Al-Ali: Towards a realistic medium term macroeconomic and fiscal framework and
outlook for the Somali national economy (2017- 2019)

growth of 2016, of 3 percent per annum. This scenario considers minimum additional productive
capacity, minimum increase in investment in the economy, particularly, in the infrastructure
sectors, besides few additional employment opportunities would be created during the plan
period. It is also assumed that security will continue the main obstacle for a big-push in
investment and expansion of private sector activities, including foreign direct investment (FDI),
in Somalia. Notwithstanding, the baseline scenario undertakes that the federal government will
keep up the efforts to reform the public-sector institutions, providing and enhancing national
capacity development and creating an efficient and more effective public service delivery
systems. This is in addition to the fact that within this baseline scenario, the government
domestic revenues will not substantially be increased. The likely modest rise in revenues, if
occurred during the plan period, would be driven by the likely planned reforms by the ministry
of finance (MOF) within the public finance management (PFM) strategy 2020, for revenue
expansion systems approach. Accordingly, and with view of expanding the tax base and tax
compliance in the economy, MOF has developed a strategy, within the PFM plan, to improve
revenue collection which is expected to yield results as early as 2017. The baseline scenario in
addition assumes that the international development partners and donors community will
continue to provide substantive support to finance the government budget gaps and
implementing the on-going and committed development projects. Despite the donors
commitments to assist Somalia in its striving towards stability and development, significant
financial gap will continue to be persisted, and hence, new approach together with new ways and
means are needed to be adopted to generate more revenues, as well as enhancing the sources of
investment, through private sector development and motivation.

Hopeful Scenario

Under the hopeful scenario, it is assumed the Somali real GDP would grow in 2017, by an
annual rate equivalent to one and a half of the growth rate calculated for the baseline scenario.
While for the years 2018-2019, it is assumed that the GDP would grow by an average compound
rate of, as much as twice of the baseline scenario’s growth rate, in each year respectively.
Accordingly, the planned real compound rate of growth of GDP would be 4.5 percent in 2017,
climbing gradually to 6 percent during 2018 and 2019. Based on this targeted growth scenarios,
the real per-capita income will grow by 1.7 percent in 2017 and thereafter by 3.2 percent in each
of 2018 and 2019. Thus, government and private sector activities would be expanded to reflect
and to achieve the growth objectives, through emphasizing prioritization and implementing right
and effective development programmes in Somalia. Also, government revenue is expected to
pick up significantly over the plan period. Besides, it is expected that the government current
expenditure would be adjusted to an economically viable share to GDP, and hence, the
government medium term and annual budget would be of more developmental and results
oriented. Furthermore, the size of capital formation (investment) planned to increase as
percentage of GDP, during the NDP period. However, most importantly that the average private
sector contribution to total investment would be steadily increased, given the planned efforts of
the government to create the sought after enabling and conducive environment for private sector

13