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Somalia, October 26, 2026 - For a government trying to finance schools, health facilities, infrastructure and security, a decline in external funding presents a difficult choice: find more money at home, reduce spending or seek alternative financing. For Somalia, the challenge is how to make that transition without placing an unsustainable burden on households and businesses.
The question is becoming increasingly urgent as Somalia works to rebuild its public institutions and strengthen its economy following years of fragility. Its progress in restoring fiscal stability and securing debt relief has created an opportunity to strengthen public finances, but the country’s domestic revenue base remains narrow.
The World Bank’s Somalia Public Finance Review 2026: The Next Stage of Public Finance examines how the country can finance its development priorities as external support declines. The report argues that a stronger domestic revenue base, more efficient public spending and better cooperation between levels of government will be essential to making public finances more sustainable.
During a pre-launch briefing, World Bank Senior Economist Stella Ilieva described the challenge as a transition towards a system increasingly anchored in domestic resources, effective institutions and stronger cooperation between governments.
The stakes extend beyond government budgets. If the transition is poorly managed, limited resources could place further pressure on essential services. If reforms are implemented effectively, Somalia could have greater capacity to finance its own priorities.
Somalia’s challenge is not simply that it needs more money. It is that the country must meet significant development needs with limited domestic resources while external grants are expected to decline.
The Public Finance Review projects that external grants could fall from around 5% of gross domestic product to below 1% by 2030. This would increase pressure on a government whose domestic revenue collection remains low relative to its needs.
The report puts domestic revenue collection at 6.3% of GDP in 2025, compared with approximately 15–17% among peer countries.
That gap has practical consequences. When public resources are limited, governments have less room to expand health and education services, maintain infrastructure, strengthen social protection or invest in climate resilience.
The World Bank’s wider assessment of Somalia’s economy has also warned that declining aid, drought and rising living costs are putting pressure on households and livelihoods. Its May 2026 Somalia Economic Update said economic growth moderated to an estimated 3% in 2025, from about 4% in 2023–24, amid these pressures.
For citizens already facing economic uncertainty, the challenge is therefore twofold: how to ensure government can finance essential services and how to prevent the measures used to raise revenue from making daily life more expensive.
One possible response to declining grants is borrowing. However, Ilieva cautioned during the briefing that Somalia would need to borrow on highly concessional terms and within prudent limits.
Somalia reached the completion point of the Heavily Indebted Poor Countries Initiative in December 2023, securing substantial debt relief. That achievement reduced the country’s debt burden, but it did not eliminate the need for careful debt management.
Ilieva warned that countries which receive debt relief can return to unsustainable debt levels if they subsequently borrow imprudently.
Her position was that grants should remain a priority where possible, while any borrowing should be carefully considered in terms of its cost, repayment conditions and intended use.
“Borrowing should be only for productive purposes,” she said, pointing to investments such as infrastructure and institution-building as examples.
The distinction matters because financing a long-term investment is different from borrowing to meet recurring expenses such as salaries. Infrastructure or productive investments may support future economic activity, while loans used to cover routine expenditure can leave governments with repayment obligations without creating a corresponding source of income.
The International Monetary Fund’s October 2026 assessment similarly emphasised preserving macroeconomic stability, strengthening domestic revenue and maintaining prudent public financial management as Somalia navigates economic uncertainty.
A transition away from heavy reliance on external grants does not necessarily mean that every taxpayer must pay more. The design of tax reforms and the coordination of tax systems will determine how the burden is distributed.
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Ilieva argued during the briefing that improved cooperation between Somalia’s Federal Government and Federal Member States could, in some cases, allow tax rates to fall by reducing inconsistencies and overlapping arrangements.
She illustrated the issue using taxes on an imported 200-litre barrel of gasoline. The figures presented during the briefing showed taxes of about US$26.50 in Mogadishu, US$9.26 in Puntland and US$7.30 in Jubaland’s Kismayo.
The differences illustrate how fragmented arrangements can create uneven costs depending on where goods enter the country.
The report also considers modernising sales taxation and broadening the tax base. A more modern value-added tax system, for example, can reduce the cascading effect that occurs when sales taxes are repeatedly applied at different stages of a supply chain.
Ilieva stressed that tax reforms should be designed to avoid harming poorer households, particularly in a country where poverty remains high and incomes are limited.
The challenge for policymakers is to collect revenue more effectively while ensuring that reforms do not deepen the hardship they are intended to help address. Clear communication, taxpayer education and consultation will also matter in building public understanding and trust.
Even if Somalia succeeds in raising additional revenue, the impact will depend on how effectively the money is spent.
The Public Finance Review identifies weaknesses in spending efficiency, uneven implementation of public financial management systems and incomplete arrangements between different levels of government. It recommends stronger controls, better procurement, improved payroll management and clearer responsibilities for financing public services.
The report’s reform simulations suggest that the proposed policy package could increase GDP by 9.3 percentage points relative to the baseline between 2026 and 2033, raise domestic revenue by around six percentage points of GDP and reduce poverty.
The simulations also estimate approximately 54,000 additional jobs and 250,000 better and more productive jobs by 2033.
These are potential outcomes under the assumptions used in the modelling, not guaranteed results. Ilieva emphasised during the briefing that the gains would depend on implementing and sustaining the proposed reforms.
That qualification is important. The figures describe what could become possible if reforms are carried out, rather than what will automatically happen simply because a new fiscal policy is announced.
For Somalia, the move towards more sustainable public finances will require more than replacing one source of money with another. It will require a system that collects revenue more fairly, allocates resources more predictably and demonstrates that public spending is producing results.
The government will need to strengthen domestic revenue collection while protecting vulnerable households, managing borrowing cautiously and ensuring that public institutions can account for the resources they receive.
Development partners will continue to have a role in supporting reforms, building institutional capacity and financing development. But the long-term objective is to strengthen Somalia’s ability to finance more of its own priorities.
For citizens, the success of this transition should ultimately be visible in everyday life: better-resourced schools and health facilities, more reliable public services, stronger opportunities for work and a clearer explanation of how public money is used.
Somalia’s next fiscal challenge is therefore not just how to fill the gap left by declining external support. It is how to build a system capable of financing development sustainably, without transferring an excessive burden to the people it is meant to serve.