Annual Financial Statements of the government reveal the status of the NDP, the Federal Government’s revenue collected, and the expenditure.
The Federal Republic of Somalia recently adopted its ninth National Development Plan (2020-2024). This blueprint outlines the country’s priorities for programs to reduce poverty and boost inclusive growth.
If implemented according to plan, the National Development Plan (NDP) aims at promoting human development (in Somalia), boosting economic recovery, strengthening governance, establishing peace and security, and making politics more inclusive.
On one hand, the pursuit of peace, security, and more inclusive politics are at the heart of this year’s election and political processes going on in the country. On the other hand, human development and economic recovery are two agendas that the government is constantly working on.
Addressing the needs of the NDP Agenda requires substantial financial resources, sound financial management systems, improved inter-governmental coordination between the Federal Government of Somalia (FGS) and the Federal Member States (FMS), and a responsive citizen-centric state system.
According to the Annual Financial Statements Of The Federal Government Of Somalia for the Year Ended 31st December 2020, which was released in November (last month), the Federal Government with the support of its development partners has continued to make steady progress in the implementation of various public financial management reforms providing critical support to national development priorities and helping to provide a modicum of macroeconomic stability during a tumultuous year.
The reforms in question include a number of interventions that were undertaken during the year to strengthen systems of domestic revenue mobilization, expenditure control, and accountability in the federal government and selected FMS.
“From the government’s revenue reform effort, local revenue collection was originally estimated to be US$234 million and because of the confluence of the Covid-19 pandemic, locusts, and erratic droughts and flooding, there was a shortfall of 10% (US$211M) of the actual revenue collected compared to the budget with US$60 million collected in in the first quarter of the year which indicates that if it were not for the effects of the outbreak of COVID-19 pandemic, the original budgeted domestic revenue of US$240 million would have been collected in 2020 if the trajectory had continued.”Dr. Abdirahman Dualeh Beileh, the Minister for Finance
The document further reveals that in March 2020, Somalia – one of 37 countries identified for debt relief through the International Monetary Fund’s Heavily Indebted Poor Countries Initiative – became the most recent to reach the initiative’s Decision Point.
Through a series of international negotiations and significant public financial management reforms led by the Ministry of Finance in the preceding IMF Staff Monitored Programs, Somalia is now on track to achieve debt cancellation for arrears accumulated following the collapse of the Republic, irrevocably reducing our debt burden from US$5.2 billion at end-2018 to US$557 million in net present value terms once it reaches the HIPC Completion Point.
Dr. Abdirahman Dualeh Beileh said in his speech that he couldn’t overemphasize how critical the normalization of Somalia’s relationships with international financial institutions is to Somalia’s economic recovery and development.
In the IMF March Country Report No. 20/85, IMF staff stated that:
“Somalia has reached the HIPC Decision Point given the authorities’ sustained commitment to reform in a challenging political, security, and climate environment. The authorities’ strong policy commitment has helped strengthen public financial management and the financial sector, improve governance, and enhance macroeconomic stability”.
The ‘Annual Financial Statements of the Federal Government of Somalia for the Year Ended 31st December 2020’ document was created by the office of the Auditor-General Mohamed M. Ali ‘Afgoi’.
The audit also includes an examination of disclosures in financial statements, on a test basis, of evidence supporting compliance in all material respects with the relevant laws and regulations which came to the auditor’s attention and are applicable to financial matters. The matters mentioned in the audit report are those that were identified through tests considered necessary for the purpose of the audit and it is possible that there might be other matters and weaknesses that were not identified.
Mr. Mohamed M. Ali ‘Afgoi’, in his statement during the ceremony to unveil the document said that the financial statements, maintenance of effective control measures, and compliance with laws and regulations are the responsibility of the Accountant General as the Accounting Officer of the Federal Government of Somalia.
“The Federal Government of Somalia’s total revenue increased significantly by US$159.1 million (47%) from $337.8 million in 2019 to US$496.9 million in 2020. The main sources of the FGS’s revenue are internally generated income; (taxes and domestic fees and charges) as well as external assistance from Multilateral and Bilateral organizations. Internal revenue (taxes and fees) of US $ 211.2 million was 42% of total revenues of US$496.8 million for the year,” he said.Mr. Mohamed M. Ali ‘Afgoi’, Auditor-General
The financial year 2020 saw revenue from taxes decrease from US$154.7 million last year to US$139.5 million. This decrease of US$15.2 million has been mainly attributed to the consequence of the deteriorated political relationship between The Federal Government of Somalia and Kenya and Somalia’s ban of imported khat from Kenya. Revenue from taxes collected was 28% of the total revenue for the year.
External assistance and grants from bilateral and multilateral agencies were significant sources of funds accounting for US$285.6 million (58%) of total revenue compared to US$108.1 million in the previous year, representing an increase of US$ 177.5 million, (164%). This was is mainly due to financing new projects and financial assistance provided in response to the COVID-19 pandemic.
The Federal Government’s payments fall into four distinct categories; recurrent, capital expenditure, loan repayments, and grants paid to sub-national governments, in particular the Federal Member States. The recurrent expenditure or costs were primarily manpower-related expenses, and cost on goods and services for operations. The recurrent expenses also include interest and other charges.
As per the document, the total payments made during the year amounted to US$485.3 million in comparison to US$315.6 million in 2019. Overall, the FGS has increased its expenditure by US$170 million, (53.8%), with the highest increases in compensation of employees of US$64.2 million and social benefits expenditure incurred this year of US$62.1 million with no spending on social benefits for the previous year.
The largest expenditure category was the employee salary cost which amounted to US$227.0 million, which was 46.8% of the total expenditure, up 39% from US$162.9 million in 2019. The second highest cost is the use of goods and services expenditure, which was 20% of total expenditure for the year.