Executive summary – Fiscal Decentralization in Somalia: Comparative Insights and a Policy Framework for Empowering Local Governance
Purpose & scope
The paper reviews Somalia’s emerging inter-governmental fiscal architecture, compares it with four comparator countries (Germany, Ethiopia, Kenya and Nigeria), and proposes a sequenced reform agenda that would empower Federal Member States (FMS) and local governments while safeguarding national cohesion.
Methodology
A qualitative policy-analysis approach combines document review of Somali laws, budget papers and donor reports with a comparative literature scan of international practice; content analysis identifies themes such as legal frameworks, revenue assignments and transfer design.
Key findings
Theme Main observations
Legal & institutional set-up Somalia still relies on ad-hoc Finance-Ministers’ Fiscal Forum communiqués; no comprehensive fiscal federalism law exists.
Revenue assignments Own-source revenue is concentrated in port-owning states; local governments have almost no autonomous tax base.
Transfer system Since 2021 a five-parameter formula allocates 40 % of on-budget donor grants to FMS/BRA (57 % equal share; 15 % revenue performance; 15 % expenditure management; 10 % external audit; 3 % fiscal-gap pool). Execution is improving but still donor-dependent and too small to close horizontal gaps.
International lessons • Germany highlights the value of a constitutional “fiscal-equalisation” clause. • Ethiopia’s block-grant formula shows how to embed needs and performance. • Kenya demonstrates how county-level discretionary funds bolster service delivery. • Nigeria warns against fragmented revenue sharing without expenditure clarity.
Policy recommendations
Enact a Fiscal Federalism Act codifying revenue assignments, borrowing rules and a rules-based transfer system.
Broaden the vertical pool: earmark a share of domestically-raised income taxes once collections exceed US $400 m.
Strengthen horizontal equity by introducing population, poverty and service-coverage variables alongside current performance indicators.
Institutionalise an Inter-governmental Fiscal Commission to replace the ad-hoc forum, publish annual scorecards and arbitrate formula disputes.
Empower local governments with a modest property-rate and business-license mandate, coupled with a capacity-building transfer window.
Align donor support with the national formula and require timely publication of transfer data in Somali and English to ensure transparency and citizen oversight.
Conclusion
Somalia has taken significant first steps—most notably the adoption of a pilot transfer formula—but remains constrained by legal gaps, donor dependence and limited local revenue space. Drawing on regional and global precedents, the paper charts a pragmatic 2025-27 roadmap that can transform the current “gentlemen’s agreements” into a predictable, equitable and accountable fiscal-decentralisation system.
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