Transforming Somalia’s Public Financial Management: Reforms, Federalism, and Economic Resilience

Somalia’s Public Financial Management Reform Journey

Somalia’s journey to rebuild its Public Financial Management (PFM) system represents one of the most significant pillars of its post-conflict state-building process.

Following more than two decades of institutional collapse after 1991, the formation of the Federal Government in 2012 marked the beginning of efforts to restore fiscal order, rebuild governance systems, and re-establish public trust.

Since 2013, Somalia has implemented a comprehensive reform program aimed at:

Strengthening financial discipline.
Enhancing fiscal transparency.
Modernizing revenue administration.
Aligning the public financial system with international standards.

The reform process, documented in Transforming Somalia’s Public Financial Management: Reforms, Federalism, and Economic Resilience, highlights both the significant achievements and the remaining challenges in building a resilient and accountable financial system.

Rebuilding the Legal and Institutional Framework

One of the most important milestones was the enactment of the Public Financial Management Act (2019).

The Act established a modern legal foundation for:

Budget preparation.
Expenditure control.
Government accounting.
Financial reporting.
Public financial oversight.

The reform was further strengthened by:

Financial Regulations (2022), which clarified institutional responsibilities.
Procurement reforms that improved governance and reduced financial mismanagement.
Revenue legislation that strengthened domestic resource mobilization.

Additional institutional achievements include:

The revival of the Office of the Auditor General.
Publication of consecutive audited government financial statements.
Restoration of external audit and public financial reporting for the first time in decades.

These reforms strengthened both:

Domestic financial governance.
International credibility with development partners.

Digital Transformation: Modernizing Financial Systems

Technology became a cornerstone of Somalia's PFM reforms.

Key digital reforms include:

Introduction of the Somalia Financial Management Information System (SFMIS).
Replacement of fragmented manual financial systems with an integrated digital platform.
Real-time monitoring of government revenues and expenditures.

Additional modernization initiatives include:

Implementation of the Treasury Single Account (TSA) to centralize government cash management.
Elimination of off-budget accounts.
Rollout of automated customs management systems.
Introduction of mobile money tax payment systems.

These reforms have contributed to:

Stronger internal financial controls.
Reduced revenue leakages.
Improved domestic revenue mobilization.
Better tax compliance and financial oversight.

Fiscal Federalism: An Ongoing Challenge

Despite progress in governance and digital systems, fiscal federalism remains one of Somalia's most complex reform areas.

Major challenges include:

Clarifying revenue assignments.
Defining expenditure responsibilities.
Strengthening intergovernmental fiscal transfers.
Improving coordination between the Federal Government and Federal Member States.

Although interim agreements have been reached in areas such as:

Natural resource sharing.
Customs revenue.

A comprehensive fiscal federalism framework has yet to be finalized.

As a result:

Revenue-sharing uncertainty remains.
Fiscal tensions occasionally arise between different levels of government.

Priority reforms include:

Strengthening fiscal coordination.
Harmonizing tax systems.
Building financial management capacity within Federal Member States.

Alignment with International Standards and Debt Relief

Somalia's reforms have closely followed international best practices.

Major improvements include:

Adoption of international public sector accounting standards.
Harmonized budget classifications.
Improved financial reporting systems.
Enhanced fiscal transparency.

These reforms contributed directly to Somalia reaching the Heavily Indebted Poor Countries (HIPC) Completion Point in 2023.

Key outcomes include:

Cancellation of billions of dollars in external debt.
Improved macroeconomic stability.
Restored international financial credibility.
Expanded access to concessional financing.
Stronger development partnerships.

International partners supporting these reforms include:

World Bank.
International Monetary Fund (IMF).
African Development Bank (AfDB).
European Union (EU).
Bilateral development agencies.

However, Somalia's sustained political commitment remained the primary driver of reform success.

Economic Impact and Remaining Gaps

The reform program has produced measurable economic benefits.

Achievements include:

Improved fiscal discipline.
Increased domestic revenue collection.
More predictable budget execution.
Stronger macroeconomic stability.
Reduced risk of unsustainable fiscal deficits.

Despite these gains, several challenges remain:

Domestic revenue remains low relative to GDP.
Heavy security expenditures consume a large share of the national budget.
Limited fiscal space remains for:
- Infrastructure.
- Healthcare.
- Education.
Improvements in financial governance must increasingly translate into better public service delivery.

Sustainable reform requires:

Stronger financial systems.
Better allocation of public resources toward national development priorities.

Lessons from Post-Conflict Reform

Somalia's experience provides important lessons for other fragile and post-conflict states.

Key lessons include:

Foundational financial controls should be established before introducing advanced reforms.
Reform sequencing is critical.
Political commitment is essential.
External incentives, including debt relief, can accelerate reform.
Long-term success depends on domestic ownership and institutional capacity.

The Somali experience demonstrates that meaningful improvements in Public Financial Management (PFM) are achievable even in fragile contexts when reforms are:

Pragmatic.
Technology-driven.
Grounded in transparency and accountability.

The Road Ahead

To sustain and deepen progress, Somalia should prioritize:

Finalizing the fiscal federalism framework.
Broadening the domestic tax base.
Modernizing tax administration.
Strengthening financial management capacity at sub-national levels.
Enhancing parliamentary oversight and civil society participation.
Expanding integrated digital financial management systems.
Protecting PFM reforms from political reversal.

Conclusion

Public Financial Management (PFM) is more than a technical system of budgets, accounting, and financial reporting.

It is the foundation for:

Good governance.
Fiscal sustainability.
Economic resilience.
National stability.

Somalia's progress over the past decade demonstrates that rebuilding public financial institutions is possible, even after prolonged conflict.

As Somalia continues its state-building journey, sustaining and deepening PFM reforms will be essential to:

Transform fiscal gains into inclusive economic development.
Improve public service delivery.
Strengthen government accountability.
Achieve long-term prosperity for the Somali people.