The Federal Republic of Somalia advances reforms to boost fiscal stability, renewable energy, and private sector growth with new World Bank support.
The World Bank has approved a $125 million International Development Association (IDA) grant to help Somalia sustain its momentum on economic and institutional reforms. This is the second and final operation under the Development Policy Financing (DPF) programme, following an equal-sized operation in 2024. Together, they aim to strengthen public finances, foster resilient private sector development, and reduce dependency on external aid.
“This DPF is a testament to the government’s unwavering commitment to implement institution-building reforms, strengthen resilience, and rebuild the social contract,” said Hideki Matsunaga, World Bank Country Manager for Somalia. The initiative focuses on enhancing the efficiency, transparency, and accountability of public institutions, laying the groundwork for sustained private sector investment and job creation.
At the heart of the reforms is a drive toward sustainable public finances, with measures to increase tax revenue and improve the management of public expenditure. By broadening the domestic resource base, Somalia seeks to fund its own development priorities, thereby reducing vulnerability to fluctuations in external grants.
In the energy sector, the programme will channel investment into renewable generation, targeting 50 megawatts of capacity by December 2026. Somalia has significant untapped potential in renewable energy resources, and lower electricity costs coupled with greater reliability are expected to catalyse economic growth, improve service delivery, and create jobs.
Private sector reforms will address key constraints to growth and job creation. These include developing the microfinance industry, expanding drought insurance coverage, and improving access to finance for women without bank accounts, thereby contributing to gender equity. The plan also promotes investment in fisheries—particularly cold storage and processing facilities—to boost seafood exports, while enhancing broadband connectivity to increase market access and digital inclusion.
“Efforts to enhance domestic resource mobilisation are imperative for decreasing dependency on external aid in the face of declining external grants,” said Stella Ilieva, Task Team Leader and Senior Economist. She emphasised that improved fiscal management will increase the “fiscal space for productivity-enhancing investments” and bolster macroeconomic stability.
The reforms supported by this DPF are aligned with Somalia’s FY24–28 Country Partnership Framework with the World Bank, which prioritises fiscal discipline, climate resilience, gender equality, and private sector-led growth. They also complement the Bank’s wider portfolio in Somalia and dovetail with investments from other development partners.
The IDA’s involvement reflects its long-standing role in supporting low-income countries with grants and concessional loans. Since its inception in 1960, IDA has committed $552 billion to 115 countries, with Africa receiving approximately three-quarters of recent annual commitments.
By combining fiscal reforms, renewable energy expansion, and private sector development, this programme seeks to secure Somalia’s economic future while reducing its reliance on aid.
Strategic significance lies in the integrated approach to macroeconomic stability, energy transition, and inclusive growth, offering Somalia a pathway toward self-reliance and resilience against future shocks.
