Somalia 2016 budget: Government looks inward in new radical strategy to finance operations

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By: Abdikariim Jama Barre

The Federal Government of Somalia is keen on polishing its debt profile in 2016 with increased disbursements towards offsetting arrears and advances in an attempt to woo back the support of the international community and multilateral donors.

The Federal Government of Somalia (FGS) targets to widen its tax base to finance a bigger 2016 budget as it weans itself from bilateral donor grants to support key operations.

It has drawn up a budget worth $246.3 million for 2016, a sizeable 24 percent increase from a revised $199 million in 2015.

An analysis of the 2016 expenditure and financing plans shows that the FGS targets to double collections from domestic indirect taxes—those levied on goods and services rather than on persons and organisations.

The indirect taxes comes diverse forms such as a sales tax or value-added tax (VAT), that is levied on goods or services rather than individuals and is ultimately paid by consumers in the form of higher prices.

Budget appropriations by the Ministry of Finance show that the FGS targets to raise $12.6million from domestic indirect taxes in 2016, a 97 percent jump from $6.4million in 2015.

This marks a radical shift in the preferred revenue model over the years where Somalia has heavily relied on revenues from international trade taxes charged on imports.

Domestic Revenue

The plans are consistent with recent disclosure by Finance minister Mohamed Adan Fargeti that his ministry targeted to generate about 64 percent of the 2016 budget from local revenues.

“The ministry of Finance will strive to make as much revenue as possible,” Mr. Fargeti told fellow ministers at the meeting chaired by Prime Minister Omar Abdirashid Sharmarke in October last year.

“If the revenue exceeds our expectations, the ministry will review the budget and adjust accordingly to increase disbursements to the ministries”

The FGS plans to cut donor bilateral assistance to $30million in 2016, a drastic drop from 2014 when it stood at $59 million. In 2015 bilateral assistance to the Somalia budget clocked $35.4 million.

The Somalia 2016 budget will give special attention on security, healthcare and repayment of arrears and advances.

The country’s Police Force for instance will be funded for $13.94million in 2016, a 106.2 percent jump from 2015—signifying the FGS’ resolve to continue consolidating gains in the ongoing campaigns to restore order in the Horn of Africa nation after decades of lawlessness.

International Community

The FGS is also keen on polishing its debt profile in 2016 with increased disbursements towards offsetting arrears and advances in an attempt to woo back the support of the international community and multilateral donors.

In its 2016 budget, the Somalia government has notably also made provisions for $32 million towards repayment or arrears and advances, representing a 174 percent increase from $11.7 million in 2015.

Over the years, Somalia budget preparation and implementation has been fraught with difficulty due to deficiencies in revenue mobilisation and expenditure pressures that outpaced available resources. The Horn of Africa nation’s budget has over time consisted largely of salary and security expenditures with deficits being financed mostly through arrears accumulation.