Somalia continued for some years to fix its currency to the USD, then for a decade tried a wide range of exchange rate arrangements, with only limited monetary policy instruments or operations. From 1991 it experienced a long period of civil wars between different factions, which severely damaged the economy and its institutions. The new government formed in 2012 set out to rebuild institutional and administrative capacity, with a view, in the monetary area, to a currency reform and a revival of monetary policy in the years beyond those covered here.
|Years||Targets and attainment||Classification|
|1974-80||currency fixed to USD from December 1973, central bank sets and adjusts at intervals rates and spreads for other major currencies (cross rates sometimes broken); previous mainly foreign-owned banking system nationalised and reorganised 1970-1, leaving two commercial banks (later merged) which lend mainly to SOEs (including state import agencies), and development bank which lends to private sector; central bank relies on quantitative and selective credit controls, plus interest rate changes (occasional before 1979, then more frequent), no money or government securities markets, budget deficits financed (net of external funds) by central bank (de jure limits not always observed, tightened 1981); development planning, with increasing range and scope of controls; Ogaden War 1977-8; widening premium from 1977 on parallel forex market; statistics very weak, no national accounts||augmented exchange rate fix AERF|
|1981-90||1981 stabilisation + structural reform programme; 1981-3 efforts to attract savings of Somali emigrant workers; rediscounting by central bank becomes more important; variety of dual and reunified exchange rate arrangements, floating and (automatically or discretely) adjusted, with or without auction system, until reunification on overvalued fixed parity with USD late 1987, followed by fiscal and monetary expansion; much of 1980s civil war; mid-1988 large devaluation and move to basket peg with weekly inflation differential adjustments that facilitate repeated depreciations, while deficits and monetary growth remain high; parallel market rate always well below official; 1990 accelerating depreciations to bring official rate closer to falling parallel rate; efforts to salvage increasingly fragile financial system; statistical data better but still weak||loosely structured discretion LSD|
|1991-2017||[Note: no Article IV reports between February 1991 and July 2015, no statistical data available for 1991-2012] 1991 government brought down by coalition of opposition groups, secession of Somaliland; armed conflicts between different groups for rest of period, with large internal and external population displacements, while international interventions ineffective; 1994 Bank of Somaliland issues own currency; 1998 secession of Puntland; central (but not regional) government and central bank cease to function, banking system loses public confidence; high degree (c. 95%) of dollarisation, also mobile phone transactions in USD; in absence of new note issues by central bank, large amounts of counterfeit 1000 Somali shilling notes (worth c. $0.05) circulate widely despite being known to be counterfeit; Federal Government of Somalia set up late 2012, but security situation still poor; work to rebuild institutional capacity in central bank, which lacks skilled personnel and has no effective monetary instruments, but also in payments system, tax administration and public financial management, and in collection of statistics; preparations by central bank for currency reform, starting with replacement of counterfeit notes, given expectation of continued dollarisation and continued float of Somali shilling; statistical data still very poor||unstructured discretion UD|
Selected IMF references: RED 1972 pp40-1; SR 1974 pp15-16; RED 1975 pp31-5, 47; SR 1975 p13; RED 1976 pp26-7, 30-1, 40; RED 1978 pp34-8; RED 1979 pp39-40, 53; RED 1981 pp41-3, 58; RED 1983 pp48-9, 64-6; SR 1983 pp10-12; RED 1984 pp53-4, 64, 88-9; RED 1985 pp48-50, 81-2; SR 1985 pp13, 20-2, 39-40; RED 1986 pp65-6; RED 1988 pp50-3; SR 1988 pp6, 9-11; RED 1989 pp19-21; SR 1991 pp3-6, 12-15, 18-19; SR 2015 pp4-12, 19-20; SR 2017 pp5-6, 8-9, 21-2; SR 2018 pp14-16, 22.
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