Second Somalia Economic Resilience Development Policy Financing

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The Federal Government of Somalia (FGS) was established in 2012 and has implemented important state- and institution-building reforms. Limited state presence and insecurity have weakened the effectiveness of reforms. Furthermore, an unfinished political settlement regarding resource distribution and functional responsibilities among the FGS, the Federal Member States (FMSs), and local authorities has exacerbated this issue. Institutional capacity is gradually improving, supported by the international community, but remains insufficient to deal with the multiple challenges facing Somalia and ensure effective coordination with FMSs on policy design and reform implementation. Continuing conflict hinders growth prospects, limits revenue mobilization, and contributes to high security costs. Federal and state governments collect minimal revenue, despite moderate economic growth over the last several years. The public sector, therefore, has little fiscal space for investments that would generate economic growth and reduce poverty. The reforms supported in this operation complement the World Bank’s engagement in Somalia. The Second Development Policy Financing (DPF 2) is part of the World Bank’s support to help Somalia construct a more stable and legitimate state, foster inclusive private-sector-led growth, and enhance resilience to rebuild the social contract and emerge from FCV. Furthermore, this operation is aligned with corporate commitments on climate co-benefits, reducing gender gaps, maximizing finance for development, and supporting Somalia’s transition out of fragility.