The International Monetary Fund is backing Somalia’s plans to replace tattered currency notes that were printed before the Horn of Africa nation plunged into civil war almost three decades ago.
The new Somali shilling notes may come into circulation this year, alongside the US dollar that’s been the main means of payment, and will replace fake or old currency in circulation, said Samba Thiam, the IMF’s country head.
“About 98 per cent of the currency circulating in the country is fake,” Mr Thiam said in an interview Friday in Nairobi, the capital of neighboring Kenya. “The remaining 2 per cent is currency printed during 1990-91, still circulating, but in very bad shape.”
Somalia’s descent into anarchy began with the ouster of dictator Mohamed Siad Barre in 1991. A subsequent insurgency has hastened the destruction of its political and economic institutions, slashing annual per capita income to US$435 and making Somalia the world’s fifth-poorest country, according to the World Bank.
Printing of the new notes, which will initially be in small denominations, is aimed at restoring the Central Bank of Somalia’s powers to set monetary policy, he said. While the institution doesn’t have the money to finance the plan, donors will back the reforms and financing will be agreed on once the government decides whether it wants a floating- or fixed-rate currency regime.
While Somalia qualifies for debt cancellation, it would have to clear arrears that are part of US$5.3 billion owed to international creditors such as the IMF, World Bank and African Development Bank to secure fresh funding, Mr Thiam said. Writing off Somalia’s loans depends on progress toward curbing corruption, introducing a new currency and an effective monetary policy in the US$6 billion economy.
“There are hurdles,” Thiam said. “But there is a general willingness from creditors to write off Somalia’s debt when the time comes, it’s a good prospect. They will not be asked to repay the debt tomorrow, so they have time to work on consolidating their economic base. The debt is an issue that will be resolved some time.” Economic growth may slow to 2.5 per cent in 2017 from 3.7 per cent last year, the IMF estimates. Agriculture accounts for 40 per cent of national output in the country whose main export is camels to Gulf Arab countries.
The IMF is also assisting the central bank with regulation and supervision of the financial sector to open it to new investors, Thiam said.
KCB Group Ltd and Commercial Bank of Africa Ltd, neighbouring Kenya’s first and sixth-largest banks by assets, are among lenders that have applied to set up shop. Somalia has six banks and 12 money-transfer businesses.
Somalis living abroad have buoyed the economy with remittances of as much as US$2.3 billion a year, Mr Thiam said. “We pretty much think the amount that could be going unnoticed, undeclared must be much bigger.” President Mohamed Abdullahi, elected into office this month, must make good on his word to fight graft, Thiam said. Somalia is the world’s most corrupt nation, according to Berlin-based Transparency International.
Improving governance may enable the nation to exploit potentially “quite large” oil and gas reserves, Mr Thiam said. The government has said production could begin as early as 2020 after exploration by companies such as Royal Dutch Shell Plc, Exxon Mobil Corp and BP Plc showed probable offshore hydrocarbon deposits. The state has held talks with those companies about reactivating dormant contracts.