Second Additional Financing for Somalia Recurrent Cost and Reform Financing Phase III

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The project supports Somalia’s efforts toward a more resilient, inclusive and stable socio-economic environment. Building on the results and lessons learned from the previous phases, the proposed AF approach is to support a gradual transition from an “input-based” to “performance-based” financing to: (i) deepen fiscal sustainability reforms; (ii) increase the focus on wage bill sustainability at both the federal and sub-national levels; (iii) enhance transparency and accountability of public expenditures, and (iv) transition out of recurrent cost financing. The Additional Financing's Performance Based Conditions will incentivize the Federal Government of Somalia and the Federal Member States to sustain the momentum of their reforms after the Heavily-Indebted Poor Country (HIPC) Completion Point is achieved and prepare them to operate in a post-HIPC environment. The Additional Financing will shift the focus from input-based to performance-based financing of recurrent costs (Component 1); continue support to strengthening intergovernmental fiscal relations, including local governance development (Component 2); increase the share of performance-based financing in transfers for core government functions and foundational education and health service delivery (Component 3); support building a real-time feedback loop from the citizens who are intended to benefit from the investments (Component 4), and support project management activities (Component 5).