Page 6 - Azerbaijan State University of Economics

THE JOURNAL OF ECONOMIC SCIENCES: THEORY AND PRACTICE, V.74, # 2, 2017, pp. 4-31

§ Balancing domestic demand and output;

§ Balance of payments;

§ Fiscal Balance: revenues and expenditure;

§ Balancing in savings and investment.

However, none of the above required balances for any stable macroeconomic setting, is in
existence or being positive in Somali economy and for quite a number of years.
Notwithstanding, these aforementioned balances are need not to be in full and exact balance.
Though imperative for the economy to be able to finance some of existing imbalances in a
sustainable manner. Achieving macroeconomic stability, in Somalia, fully depends on the
structural development of the Key Sectors of the Somali economy, particularly, the main
productive sectors of the economy and those with high comparative advantage. Accordingly,
Somalia needs to support macroeconomic policy with structural reforms that strengthen and
improve the functioning of these key sectors.

The Macroeconomic Challenges

There are quite few challenge facing the economy of FRS. These macroeconomic challenges, in
addition to the overall challenges facing the country such as; security, political stability, role of
the law, amongst other things, are:

§ The single sector nature of the Somali economy, where the agriculture at large including
livestock and fisheries activities, is the dominant sector of the economy and represent the largest
share of GDP at two third of the GDP in 2015, and contributed to over three quarter of the
Somali total export. Given the nature of these sectors and their uncontrollable production
fluctuation, this would call for serious steps to promote and developed these sectors, in line with
the economic potentialities and comparative advantage characterizing these sectors of the
economy. This should be pursued with due consideration to lessen the full dependency on these
sectors, and adopting an effective development approach based on economic diversification
strategy, in order to avoid any distortion of the structure of Somali national economy, and to
reducing the existing imbalances;

§ High level of economic exposure to outside world is one of the economically negative
characteristic of the Somali economy at present. This is brought about by the domination of
primary commodity sectors that are not responsive to the increasing domestic demand for goods
and services in national Somali market. Neither these sectors can generate a high level of
domestic revenue to finance increasing public demand, and/or generating foreign currency to pay
for ever increasing size of imports goods and services, which needed to meet the domestic
demand. Besides, the impact of these external exposures and likely shocks affecting the Somali
domestic economy, are apparent resulting from the increasing reliance of financing the
government budget on the international donors contribution and grants;

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