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Somalia’s Public Finance Crisis: A Book Review By Dr. Mahamud M. Yahya

June 17, 2011 7:40 pm GMT - Written by PP - Edited by PP

 The well-known Somali expert on economic affairs (who is also a former high ranking official of the International Monetary Fund or IMF), Mr. Ali Issa Abdi (PhD), has published this year another interesting book, titled  “Somalia: Crisis in Economic and Financial Management: The Root Cause of the State Collapse and the Principal Challenge to National Recovery[1]  The author put together a very objective, well-researched and well-written study on the economic and financial management failures as the main cause of the collapse of the state in Somalia and the total destruction of practically all its governmental institutions. The study first takes an overall view of the recent history of public/government finance management in Somalia; it then deals in sufficient detail with the critical nature of sound public finance management, particularly in fragile and post-conflict countries; it then focuses on how to rebuild institutional capacity for sound public finance management in that unlucky country; and finally it presents concrete  findings, conclusions and recommendations for attaining better national financial management or integrity in Somalia.

The study clearly shows that a good public financial management is a prerequisite for the proper functioning of a government or a nation-state anywhere. This is so, because, as the author puts it: in the past the term “good governance” was limited to improving “public administration” but today “good governance” includes to mean the manner in which power and the application of law are exercised in the management of a country’s political, economic and social development. Furthermore, one of the main causes of internal conflicts (or civil wars) in Africa is believed to be “the inequitable use of available public resources, and poor economic and financial governance”, as the book emphasizes. Or as the veteran Islamic scholar, Abdallah ibn Muslim ibn Qutayba, which the study quotes, had declared more than a thousand years ago: “There can be no government without an army, no army without money, no money without prosperity, and no prosperity without justice and good administration.”[2]

With regard to Somalia, the study posits that the failure of public financial management had started right from the time the country gained its independence in mid- 1960 and became worse during the military regime (1969-1991), which was obsessed with survival and security measures during the second half of its tenure. For obvious reasons, that problem, which has plagued the country from the beginning, became much more acute during the civil war that began in Jan. 1991 with no sign of ending any time soon. Due to this devastating civil strife and the total destruction of the country’s state institutions – foremost among them being those in charge of public finance management (PFM) – the country was ranked the most corrupt nation in the world among 180 countries that were studied by Transparency International in 2009. Again, in another study regarding good governance, Somalia was recently ranked as the last and worst out of 53 sovereign states in Africa. Moreover, as the book under review indicates, Somalia cannot benefit by borrowing from the international money market because it has accumulated during the previous civilian and military regimes external debts to the tune of over US $3.2 billion – both bilateral and international – by the end of 2007 (a substantial portion of it being represented by interest on the arrears that could not be repaid after the collapse of the state in Somalia more than two decades ago).  Until and unless this huge debt is somehow settled – through repayment or forgiveness – nobody will lend a penny to Somalia.

Another strong point of Dr. Ali Issa’s study is that it offers specific suggestions for rebuilding Somalia’s governmental financial system, starting with the reconstruction of PFM entities from scratch – foremost among them being the country’s Central Bank and making the latter assume its proper role as well as functions after more than 20 years of virtual non-existence. Another good recommendation is the need to strengthen institutional capacity for effective aid management. As the study under review demonstrates, Somalia is estimated to have received over US $758 million, in the form of financial assistance, during the period 1999-2008 from both bilateral and multilateral donors. However, there is no proper accounting for this significant aid and nobody knows whether it was properly spent or otherwise; nobody also knows what were the main legitimate items or heads of its expenditure. This could be attributed to the fact that Somalia has, practically, not met any of the major indicators of the internationally accepted standards of the Paris Declaration on Aid Effectiveness of March 2005.

Furthermore, the author recommends that emphasis should be placed on greatly strengthening the mobilization of domestic revenues by improving the collection of custom duties, income, property and other direct taxes as well as sales and excise duties. At present, the only domestic revenues that are available to the Transitional Federal Government (TFG) of Somalia are the meager financial resources that it collects from sea- and airports in Mogadishu. In this regard, the TFG’s budget for fiscal year 2011, which was formalized and approved last year with the help of the Horn Economic & Social Policy Institute for the first time in almost 20 years, amounts to about US $99 million; the greater part of it or $69 million (i.e., 70%) is hoped to come from external donors. (Neighboring Ethiopia and Kenya’s budgets for the same year, i.e., Fiscal Year 2011, were reported to be around US $7 billion and $13.4 billion, respectively, most of them financed through domestic revenues.) And it is a measure of the country’s current status as the “No. 1 Failed State” in the world that even the salaries of its Government Ministers and Members of Parliament are today paid by foreign governments or entities. What a shame!

Last but not least, this study on the economic and financial crisis in Somalia is a great contribution by Dr. Ali Issa Abdi, the Managing Director of HESPI. I would, therefore, like to suggest that it should be distributed and made available to the largest possible audience in Somalia, both to the different organs concerned with PFM within the Transitional Federal Government and Somaliland as well as the regional administrations in Puntland, Galmudug, etc., and even the wider civil societies in these areas. In addition to that, I hope the above-cited book would be translated into Somali language by HESPI or other entities, as soon as feasible, so that people who are not fluent in English could profit from the wealth of information, findings and recommendations incorporated in its relatively small number of pages (i.e., 124 pages in total). Any person – Somali or otherwise – who desires to understand the recent history of Somalia’s public or government financial management and its current dismal state, should look at this book. (It can be acquired via the internet through Amazon.com.)                   

Mahamud M. Yahya, PhD

e-mail: mm44yahya@hotmail.com


Note:  I would like to dedicate this article to the memory of Mr. Abadishakur Sheikh Hassan Farah, the late Minister of the Interior of the Transitional Federal Government of Somalia, who was brutally assassinated last week  (10/6/2011) by a female suicide bomber (or kamikaze) belonging  to the misguided terrorist outfit, Al-Shabaab. May Allah almighty bestow his abundant mercy on this totally innocent victim.

[1] Abdi, Ali Issa (PhD), Somalia: Crisis in Economic and Financial Management: The Root Cause of the State Collapse and the Principal Challenge to National Recovery  (The Horn Economic & Social Policy Institute, Addis Ababa, Ethiopia, 2011). 

[2]  See  the biography of “Qutayba ibn Muslim” in Wikipedia, the free internet encyclopedia.

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