INTERNATIONAL DEVELOPMENT ASSOCIATION INTERNATIONAL MONETARY FUND SOMALIA Joint World Bank-IMF Debt Sustainability Analysis August 2019 Prepared jointly by the staffs of the International Development Association (IDA) and the International Monetary Fund (IMF) Approved by Marcello Estevão (IDA) and Thanos Arvanitis and Nathan Porter (IMF) Somalia: Joint Bank-Fund Debt Sustainability Analysis Risk of external debt distress: In debt distress Overall risk of debt distress In debt distress Granularity in the risk rating Unsustainable Application of judgment No This report presents the first official debt sustainability analysis undertaken for Somalia. Based on both external and public debt indicators, Somalia is in debt distress. Total public debt is very high—at $4.8 billion, or 101 percent of GDP at end-2018—nearly all of which is external (100 percent of GDP) (Tables 1 and 2). The finding that Somalia is in debt distress reflects the high external arrears on debt relative to GDP, which now represent 96 percent of the debt stock. While Somalia has no capacity to access new financing, its debt burden will continue to increase as late interest on arrears continues to accumulate. Under broadly steady state assumptions, Somalia’s total public debt is expected to increase to around 128 percent of GDP by 2039. Key risks that affect the outlook include external financing, security, and climate, further highlighting the unsustainability of Somalia’s current debt burden. Consequently, in the absence of debt relief, Somalia will remain in debt distress. PUBLIC DEBT COVERAGE 1. Public debt data coverage is limited to the central government. There is no government guaranteed debt, there are no known liabilities of state-owned enterprises or subnational governments, and public-private partnerships do not exist. Given the nascent state of domestic financial institutions and local capital markets, domestic public debt does not exist beyond the accumulation of government arrears. While external obligations are currently undergoing a reconciliation process, available information is sufficient to undertake a preliminary debt sustainability analysis. 2. Somalia’s debt-carrying capacity is classified as weak. This classification is guided by the composite indicator score, as determined by the World Bank’s CPIA, the country’s real GDP growth, import coverage of foreign exchange reserves, remittances as percent of GDP, and growth of the world economy. Text Table 1. Somalia: Composite Indicator and Threshold Tables Debt Carrying Capacity and Thresholds Country Somalia Country Code 726 Debt Carrying Capacity Weak Classification based on Classification based on Final current vintage the previous vintage Weak Weak Weak 1.23 0.57 Note: Calculated based on the most recent WEO vintage (April 2019). 2 BACKGROUND ON DEBT AND MACROECONOMIC DATA 3. Somalia has not contracted any new external debt since the late 1980s; the existing debt is mainly due to official creditors. The nominal level of indebtedness has risen steadily since 1991 reflecting the accumulation of arrears and late interest. Currently, of the $4.5 billion in arrears, $1.7 billion is composed of principal, $1.0 billion is unpaid interest, and $1.8 billion is late interest or fees.1 Most is owed to Paris Club creditors (53 percent), followed by multilaterals (32 percent), and non-Paris Club bilateral creditors (15 percent) (see Text Figure 1). All domestic debt (1.5 percent of GDP) represents central government arrears. Text Figure 1. External Debt Composition, end-2018 Others IFIs IMF $0.34 World Bank $0.07 bn, bn, $0.5 bn, 1% 7% 11% Non-Paris AfDB Group Club $0.14 bn, creditors 3% $0.69 bn, 15% AFESD $0.18 bn, 4% Paris Club Arab creditors Monetary $2.49 bn, Fund $0.29 53% bn, 6% 4. Data limitation significantly constrain macroeconomic analysis, limiting the significance of the results provided by the standardized stress test in the LIC-DSF (see also paragraph 9). The national accounts data contain only a relatively short time series (six years), which builds from expenditure-based estimates derived from household survey data (see staff report for further details). Substantial gaps are also present in balance-of-payments data, including on current account flows. Trade data are based on third party data and augmented by data for the Port of Mogadishu. Secondary transfers data are also derived from third parties and are cross-checked with Somali data which are improving. Direct investment data are derived from the real sector file but an FDI survey is under construction. 1 Of the $191 million not in arrears, $31 million and $160 million are obligations to the African Development Fund and the International Development Fund, respectively. 3 MEDIUM- AND LONG-TERM ASSUMPTIONS 5. Somalia is a fragile state that is very vulnerable to security and climate shocks, although macroeconomic conditions are slowly improving. In the wake of a long civil war, Somalia’s economic and human capital has been significantly degraded. The fragilities are accentuated by frequent climate shocks, which directly impact agricultural activities that account for the bulk of economic activity. These characteristics underpin staffs’ tailored shocks. Nonetheless, important efforts have been made in recent years to improve social and macroeconomic stability, with substantial international support aiming to rebuild institutions. As a result, improving conditions have helped to ensure positive real growth rates, albeit at relatively modest average of about 2.5 percent (2013–18). These are expected to rise to around 3.5 percent over the medium term. 6. The baseline scenario broadly assumes a continuation of the status quo into the medium and long term. The baseline scenario assumes stable real growth of around 3.5 percent a year, moderately exceeding Somalia’s 2.9 percent population growth rate since 2000, 2 and reflecting an anticipated positive impact of the successor SMP, which should help buttress macroeconomic stability and consolidate recent structural reforms. It is also assumed that the economy will remain fully dollarized, implying low inflation and no adverse nominal exchange rate movements. The trade balance is expected to remain highly negative, financed by official grants and remittances. The residual current account balance is assumed to be financed by foreign direct investment as Somalia has no access to other financing. Export growth will remain in line with overall economic growth. The fiscal stance is expected to remain in balance, given no access to new external or domestic debt financing, and no accumulation of new domestic arrears, as required under the new SMP. Even with these relatively benign assumptions, Somalia’s debt stock would be expected to continue to increase in the absence of HIPC debt relief, given the accumulation of late interest and other penalties.3 EXTERNAL DEBT SUSTAINABILITY 7. Somalia’s current external public debt is unsustainable and given the high share of debt relative to GDP in arrears, the country is in debt distress. Under the baseline assumptions, external debt will increase to about 128 percent of GDP by the end of the projection period.4 Moreover, by 2039, external debt would reach around 480 percent of exports, and debt service would be over 80 percent of fiscal revenues. All these indicators substantially exceed Somalia’s indicative thresholds (Tables 1 and 2, Text Figure 2). 8. The materialization of any risk scenarios would only aggravate the already unsustainable position. The application of the standard DSA stress test to Somalia is complicated by the short historical data series as well as severe structural breaks. 2 Derived from World Bank total population data for Somalia, 2000–2017. 3 Staff currently have no specific information on penalties; this should be clarified through the debt reconciliation process. 4 The projection period has been extended to 20 years from the standard 10 years. 4 9. Given the specifics of Somalia circumstances and, in particular, the binding financing constraint it faces, standard sensitivity tests have only limited relevance. The standardized tests embedded in the LIC-DSF generate a financing gap that is assumed to be filled by the accumulation of new debt. However, Somalia has no access to any formal debt financing so, in practice, any additional financing needs would be expected to be accommodated through lower fiscal expenditures, lower imports, or higher grants. In addition, the volatility and short time series of the data undermine the calculation of the standard deviations used to scale the tests. Nevertheless, the results of the standard tests are shown in Figures 1 and 2, and Tables 3 and 4. 10. Instead, staff have focused on assessing the potential impact of a number of tailored stress tests (Text Figure 2). These tailored tests reflect the risks identified in the risk assessment matrix (RAM) and focus instead on potential shocks to economic activity, but which take account of the financing constraint. These include the impact of a sustained deterioration in domestic security conditions and a climate shock. We also consider the impact of a general loss of confidence in reform momentum. For analytical purposes, the shocks are designed to materialize in the near term and would be expected to occur through changes in economic activity, export receipts, and fiscal revenues relative to the baseline, rather than in financing gaps. • External financing shock. This scenario would be consistent with a loss of confidence in the government reform program, for example, if progress under the SMP or other reform programs were to deteriorate significantly, which would affect both donor engagement and investor confidence. In this scenario, development aid and FDI fall gradually to about half their current levels by 2024, thereafter stabilizing. Humanitarian aid and remittances, however, are assumed to remain stable. This loss of inflows reduces the scope for key development spending, leading to lower growth of about 2.0 percent by 2024, constraining fiscal revenues relative to the baseline. At this point, the lower level of GDP would imply that debt would be equivalent to 171 percent of GDP and 640 percent of exports, and debt service of around 120 percent of revenues by 2039. • Security shock. Under this scenario, a sustained deterioration in security conditions materializes and GDP slows even further to nil by 2024, followed by a modest recovery. Nonetheless, the effects of the security shock would continue to drag on longer-term growth, which would be weaker than under the baseline (at 1.8 percent). Continued donor support helps to support fiscal revenues in the short-run, but over the long run lower growth depresses the potential for domestic revenue mobilization. As a result, debt would reach 190 percent of GDP and 711 percent of exports, and debt service of 127 percent of revenues by 2039. • Climate shock. Under this scenario, we assume a reoccurrence of drought akin to the 2017 episode. The effects of this shock are largely mitigated by increased mobilization of humanitarian aid. In this scenario, GDP growth slows immediately in the aftermath to 1 percent and then recovers to the baseline rate of growth (of 3.5 percent) after two years. With the shock dissipating quickly, the long-term impact on debt is small relative 5 to the baseline (to 132 percent of GDP and 494 percent of exports, and debt service equivalent to 88 percent of fiscal revenues by 2039. PUBLIC DEBT SUSTAINABILITY 11. Indicators of public debt are largely indistinguishable from the indicators for external debt. The conclusions with regards to external debt sustainability are relevant also for public debt sustainability, given that domestic debt is limited to a small stock of government arrears. Text Figure 2. External Debt Shocks PV of External Debt-to-GDP (%) PV of External Debt-to-Exports (%) Debt Service-to-Revenue (%) 200 800 140 Baseline 180 External Financing Shock 700 120 160 Security Shock Climate Shock 600 140 100 Threshold 500 120 80 100 400 80 60 300 60 200 40 40 100 20 20 - - - 2019 2021 2023 2025 2027 2029 2031 2033 2035 2037 2039 2019 2021 2023 2025 2027 2029 2031 2033 2035 2037 2039 2019 2021 2023 2025 2027 2029 2031 2033 2035 2037 2039 CONCLUSION 12. Somalia external public debt and overall public debt are in distress. The assessment of external debt distress reflects the high level of external arrears relative to GDP, and indeed arrears are approaching the totality of the debt stock. The external debt and total public debt are already in breach of their indicative thresholds, and the trajectory deteriorates further in the medium and long term, even under relatively hopeful steady state assumptions. Key risks that affect the outlook include external financing, security, and confidence shocks, as well as the risk of higher interest rates, further highlighting the unsustainability of Somalia’s current debt burden. Exiting this unsustainable debt situation will require debt relief, and the authorities should continue to pursue the HIPC debt relief process as a priority. Successful completion of that process holds the prospect of possibly renewed access to regular debt financing. Authorities’ Views 13. The authorities broadly agreed with the results of the DSA. They concurred with the underlying macroeconomic assumptions, the use of tailored shocks in response to data limitations, the projected debt paths within the analysis, and the headline debt sustainability rating. They stressed that restoring debt to a sustainable path and realizing poverty reducing real GDP growth will hinge upon 6 completing the HIPC debt relief process. To make fast progress to that end, the authorities have prioritized efforts to fulfil the necessary prerequisites. The authorities also recognized the importance of early preparations to build debt management capacity to ensure that debt remains sustainable post-HIPC, and plan to intensify efforts to strengthen monitoring capacity, clarify the power to contract debt at the central and general government levels, and develop frameworks for the issuance of government guarantees. 7 Table 1. Somalia: External Debt Sustainability Framework, Baseline Scenario, 2018 –2039 (in percent of GDP, unless otherwise indicated) Actual Projections Average 8/ Historical Projections 2018 2019 2020 2021 2022 2023 2024 2029 2039 External debt (nominal) 1/ 99.5 99.5 99.5 99.4 99.3 99.3 99.5 103.2 128.2 29.0 100.3 Definition of external/domestic debt Residency-based of which: public and publicly guaranteed (PPG) 99.5 99.5 99.5 99.4 99.3 99.3 99.5 103.2 128.2 29.0 100.3 Is there a material difference between the No two criteria? Change in external debt -3.8 0.0 0.1 -0.1 -0.1 0.0 0.2 1.1 3.9 Identified net debt-creating flows -5.0 -3.5 -3.9 -4.2 -3.5 -3.3 -3.3 -3.4 -4.1 -5.0 -3.5 Non-interest current account deficit 8.2 3.9 3.4 3.3 4.0 4.0 3.8 2.6 -1.6 5.5 3.5 Deficit in balance of goods and services 73.7 72.6 71.1 71.4 70.6 68.8 67.2 59.7 46.9 55.4 66.8 Exports 25.9 26.8 26.5 26.2 27.0 27.0 26.9 26.8 26.6 Debt Accumulation Imports 99.6 99.4 97.6 97.6 97.6 95.8 94.1 86.5 73.6 8.0 1 Net current transfers (negative = inflow) -66.1 -65.0 -63.8 -64.1 -62.4 -59.8 -58.1 -50.7 -38.0 -50.7 -58.3 of which: official -36.9 -36.3 -34.7 -34.7 -33.7 -32.5 -31.4 -26.4 -18.7 7.0 1 Other current account flows (negative = net inflow) 0.6 -3.6 -3.9 -4.0 -4.1 -5.0 -5.2 -6.4 -10.5 0.1 -5.0 1 Net FDI (negative = inflow) -8.6 -9.0 -8.9 -9.0 -9.0 -9.0 -9.0 -9.0 -8.9 -5.5 -9.0 6.0 Endogenous debt dynamics 2/ -4.6 1.6 1.6 1.4 1.5 1.7 1.9 3.0 6.4 1 Contribution from nominal interest rate 0.1 4.3 4.6 4.7 4.8 5.0 5.2 6.4 10.5 5.0 1 Contribution from real GDP growth -2.8 -2.7 -3.0 -3.3 -3.3 -3.3 -3.3 -3.4 -4.1 4.0 1 Contribution from price and exchange rate changes -1.9 … … … … … … … … Residual 3/ 1.2 3.5 4.0 4.1 3.3 3.3 3.5 4.5 8.0 1.2 3.8 3.0 0 of which: exceptional financing 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0 2.0 0 Sustainability indicators 1.0 0 PV of PPG external debt-to-GDP ratio 98.6 98.7 98.9 98.9 98.9 99.1 99.4 103.2 128.3 PV of PPG external debt-to-exports ratio 380.1 368.3 373.1 377.5 366.7 367.4 368.9 384.9 481.7 0.0 0 PPG debt service-to-exports ratio 2.0 17.7 18.9 19.4 19.1 19.7 20.4 24.4 39.5 2019 2021 2023 2025 2027 2029 PPG debt service-to-revenue ratio 13.3 66.4 67.5 65.8 64.2 63.8 63.3 64.7 81.0 Gross external financing need (Million of U.S. dollars) 3.5 -17.6 -27.0 -32.2 9.3 18.5 17.6 12.2 4.6 Debt Accumulation Grant-equivalent financing (% of GDP) Key macroeconomic assumptions Grant element of new borrowing (% right scale) Real GDP growth (in percent) 2.8 2.9 3.2 3.5 3.5 3.5 3.5 3.5 3.5 -3.5 3.4 GDP deflator in US dollar terms (change in percent) 1.8 2.1 2.0 2.0 2.0 2.0 2.0 2.0 2.0 1.3 2.0 Effective interest rate (percent) 4/ 0.1 4.6 4.9 5.0 5.1 5.3 5.5 6.6 8.9 0.1 5.6 External debt (nominal) 1/ Growth of exports of G&S (US dollar terms, in percent) 23.1 8.6 4.1 4.3 8.7 5.6 5.5 5.5 5.5 5.8 5.9 of which: Private Growth of imports of G&S (US dollar terms, in percent) 1.7 4.8 3.4 5.5 5.6 3.7 3.7 3.9 3.1 5.8 4.2 104 Grant element of new public sector borrowing (in percent) ... ... … Government revenues (excluding grants, in percent of GDP) 3.9 4.2 4.5 4.9 5.2 5.6 6.0 7.7 11.1 2.4 5.9 103 Aid flows (in Million of US dollars) 5/ 86.7 147.9 152.8 157.7 162.9 168.3 173.9 204.6 283.3 Grant-equivalent financing (in percent of GDP) 6/ ... ... ... ... ... ... ... ... ... ... … 102 Grant-equivalent financing (in percent of external financing) 6/ ... ... ... ... ... ... ... ... ... ... … Nominal GDP (Million of US dollars) 4,721 4,958 5,218 5,507 5,816 6,143 6,488 8,526 14,724 101 Nominal dollar GDP growth 4.7 5.0 5.2 5.5 5.6 5.6 5.6 5.6 5.6 -2.0 5.5 100 Memorandum items: 99 PV of external debt 7/ 98.6 98.7 98.9 98.9 98.9 99.1 99.4 103.2 128.3 In percent of exports 380.1 368.3 373.1 377.5 366.7 367.4 368.9 384.9 481.7 98 Total external debt service-to-exports ratio 2.0 17.7 18.9 19.4 19.1 19.7 20.4 24.4 39.5 PV of PPG external debt (in Million of US dollars) 4652.4 4894.8 5162.9 5448.5 5754.2 6085.8 6446.0 8802.0 18891.9 97 (PVt-PVt-1)/GDPt-1 (in percent) 5.1 5.4 5.5 5.6 5.7 5.9 6.9 11.1 2019 2021 2023 2025 2027 2029 Non-interest current account deficit that stabilizes debt ratio 12.0 3.9 3.3 3.4 4.2 4.0 3.6 1.5 -5.5 Sources: Country authorities; and staff estimates and projections. 0 1/ Includes both public and private sector external debt. 2/ Derived as [r - g - ρ(1+g) + Ɛα (1+r)]/(1+g+ρ+gρ) times previous period debt ratio, with r = nominal interest rate; g = real GDP growth rate, ρ = growth rate of GDP deflator in U.S. dollar terms, Ɛ=nominal appreciation of the local currency, and α= share of local currency-denominated external debt in total external debt. 3/ Includes exceptional financing (i.e., changes in arrears and debt relief); changes in gross foreign assets; and valuation adjustments. For projections also includes contribution from price and exchange rate changes. 4/ Current-year interest payments divided by previous period debt stock. 5/ Defined as grants, concessional loans, and debt relief. 6/ Grant-equivalent financing includes grants provided directly to the government and through new borrowing (difference between the face value and the PV of new debt). 7/ Assumes that PV of private sector debt is equivalent to its face value. 8/ Historical averages are generally derived over the past 10 years, subject to data availability, whereas projections averages are over the first year of projection and the next 10 years. 8 Table 2. Somalia: Public Sector Sustainability Framework, Baseline Scenario, 2018 –2039 (in percent of GDP, unless otherwise indicated) Actual Projections Average 6/ 2018 2019 2020 2021 2022 2023 2024 2029 2039 Historical Projections Public sector debt 1/ 101.0 100.9 100.9 100.6 100.5 100.4 100.6 104.0 128.7 30.2 101.4 Definition of external/domestic Residency- of which: external debt 99.5 99.5 99.5 99.4 99.3 99.3 99.5 103.2 128.2 29.0 100.3 debt based of which: local-currency denominated Change in public sector debt -3.9 -0.1 0.0 -0.2 -0.2 0.0 0.1 1.1 3.9 Is there a material difference Identified debt-creating flows -4.7 -0.7 -0.9 -1.3 -1.6 -1.5 -1.6 -2.3 -4.0 -4.7 -1.6 No between the two criteria? Primary deficit 0.0 -0.3 -0.3 -0.3 -0.4 -0.2 -0.3 -0.4 -0.1 0.1 -0.3 Revenue and grants 5.7 7.2 7.4 7.7 8.0 8.3 8.7 10.1 13.0 3.7 8.6 of which: grants 1.8 3.0 2.9 2.9 2.8 2.7 2.7 2.4 1.9 Public sector debt 1/ Primary (noninterest) expenditure 5.7 6.9 7.1 7.4 7.7 8.1 8.4 9.7 12.9 3.8 8.3 Automatic debt dynamics -4.6 -0.4 -0.6 -1.0 -1.2 -1.3 -1.4 -1.9 -3.9 of which: local-currency denominated Contribution from interest rate/growth differential 222.5 -9.5 6.0 1.2 -2.7 0.4 0.2 -0.7 -3.2 of which: foreign-currency denominated of which: contribution from average real interest rate 225.3 -6.6 9.2 4.6 0.7 3.8 3.6 2.7 1.0 of which: contribution from real GDP growth -2.9 -2.8 -3.1 -3.4 -3.4 -3.4 -3.4 -3.5 -4.2 120 Contribution from real exchange rate depreciation -227.1 ... ... ... ... ... ... ... ... 100 Other identified debt-creating flows 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Privatization receipts (negative) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 80 Recognition of contingent liabilities (e.g., bank recapitalization) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 60 Debt relief (HIPC and other) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Other debt creating or reducing flow (please specify) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 40 Residual 0.8 9.7 -5.7 -1.1 2.9 -0.2 0.2 2.2 7.2 0.8 1.2 20 Sustainability indicators 0 PV of public debt-to-GDP ratio 2/ 100.0 100.1 100.3 100.2 100.1 100.2 100.4 104.0 128.8 2019 2021 2023 2025 2027 2029 PV of public debt-to-revenue and grants ratio 1,747.5 1,399.5 1,349.9 1,297.9 1,245.4 1,202.1 1,160.0 1,031.2 990.2 Debt service-to-revenue and grants ratio 3/ 9.1 66.4 67.5 65.8 64.2 63.8 63.3 64.7 81.0 Gross financing need 4/ 0.5 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 of which: held by residents of which: held by non-residents Key macroeconomic and fiscal assumptions 105 Real GDP growth (in percent) 2.8 2.9 3.2 3.5 3.5 3.5 3.5 3.5 3.5 -3.5 3.4 104 Average nominal interest rate on external debt (in percent) 0.1 4.6 4.9 5.0 5.1 5.3 5.5 6.6 8.9 0.1 5.6 103 Average real interest rate on domestic debt (in percent) -1.8 -2.0 -1.9 -1.9 -2.0 -2.0 -2.0 -2.0 -2.0 -1.3 -2.0 102 Real exchange rate depreciation (in percent, + indicates depreciation) -69.4 … ... ... ... ... ... ... ... 85.5 ... 101 Inflation rate (GDP deflator, in percent) 1.8 2.1 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.1 2.0 100 Growth of real primary spending (deflated by GDP deflator, in percent) -10.8 24.3 6.7 8.0 7.0 9.3 7.3 7.1 5.3 19.5 8.7 99 Primary deficit that stabilizes the debt-to-GDP ratio 5/ 3.8 -0.2 -0.3 -0.1 -0.2 -0.2 -0.4 -1.4 -4.0 -32.9 -0.6 98 PV of contingent liabilities (not included in public sector debt) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 97 96 2019 2021 2023 2025 2027 2029 Sources: Country authorities; and staff estimates and projections. 1/ Coverage of debt: The central government plus social security, central bank, government-guaranteed debt . Definition of external debt is Residency-based. 2/ The underlying PV of external debt-to-GDP ratio under the public DSA differs from the external DSA with the size of differences depending on exchange rates projections. 3/ Debt service is defined as the sum of interest and amortization of medium and long-term, and short-term debt. 4/ Gross financing need is defined as the primary deficit plus debt service plus the stock of short-term debt at the end of the last period and other debt creating/reducing flows. 5/ Defined as a primary deficit minus a change in the public debt-to-GDP ratio ((-): a primary surplus), which would stabilizes the debt ratio only in the year in question. 6/ Historical averages are generally derived over the past 10 years, subject to data availability, whereas projections averages are over the first year of projection and the next 10 years. 9 Figure 1. Somalia: Indicators of Public and Publicly Guaranteed External Debt under Alternative Scenarios, 2019–2029 PV of debt-to GDP ratio PV of debt-to-exports ratio 200 700 180 600 160 140 500 120 400 100 80 300 60 200 40 100 20 Most extreme shock: Combined contingent liabilities Most extreme shock: Exports 0 0 2019 2021 2023 2025 2027 2029 2031 2033 2035 2037 2039 2019 2021 2023 2025 2027 2029 2031 2033 2035 2037 2039 Debt service-to-exports ratio Debt service-to-revenue ratio 60 160 140 50 120 40 100 30 80 60 20 40 10 20 Most extreme shock: Exports Most extreme shock: One-time depreciation 0 0 2019 2021 2023 2025 2027 2029 2031 2033 2035 2037 2039 2019 2021 2023 2025 2027 2029 2031 2033 2035 2037 2039 Baseline Most extreme shock 1/ Threshold Customization of Default Settings Borrowing assumptions on additional financing needs resulting from the stress tests* Size Interactions Default User defined Shares of marginal debt No No External PPG MLT debt 100% Tailored Stress Terms of marginal debt Combined CL No Avg. nominal interest rate on new borrowing in USD 0.0% 0.8% Natural disaster n.a. n.a. USD Discount rate 5.0% 5.0% Commodity price n.a. n.a. Avg. maturity (incl. grace period) 1 38 Market financing n.a. n.a. Avg. grace period 0 6 Note: "Yes" indicates any change to the size or interactions of * Note: All the additional financing needs generated by the shocks under the stress tests are the default settings for the stress tests. "n.a." indicates that the assumed to be covered by PPG external MLT debt in the external DSA. Default terms of marginal stress test does not apply. debt are based on baseline 10-year projections. Sources: Country authorities; and staff estimates and projections. 1/ The most extreme stress test is the test that yields the highest ratio in or before 2029. The stress test with a one-off breach is also presented (if any), while the one-off breach is deemed away for mechanical signals. When a stress test with a one-off breach happens to be the most exterme shock even after disregarding the one-off breach, only that stress test (with a one-off breach) would be presented. 10 Figure 2. Somalia: Indicators of Public Debt under Alternative Scenarios, 2019 –2029 Figure 2. Somalia: Indicators of Public Debt Under Alternative Scenarios, 2019-2029 PV of Debt-to-GDP Ratio 300 250 200 150 100 Most extreme shock: Growth 50 0 2019 2021 2023 2025 2027 2029 PV of Debt-to-Revenue Ratio Debt Service-to-Revenue Ratio 2000 140 1800 120 1600 1400 100 1200 80 1000 60 800 600 40 400 Most extreme shock: Growth 20 Most extreme shock: Growth 200 0 0 2019 2021 2023 2025 2027 2029 2019 2021 2023 2025 2027 2029 Baseline Most extreme shock 1/ TOTAL public debt benchmark Borrowing assumptions on additional financing needs resulting from the Default User defined stress tests* Shares of marginal debt External PPG medium and long-term 100% 100% Domestic medium and long-term 0% 0% Domestic short-term 0% 0% Terms of marginal debt External MLT debt Avg. nominal interest rate on new borrowing in USD 0.0% 0.8% Avg. maturity (incl. grace period) 1 38 Avg. grace period 0 6 Domestic MLT debt Avg. real interest rate on new borrowing 0.0% 0.0% Avg. maturity (incl. grace period) 1 1 Avg. grace period 0 0 Domestic short-term debt Avg. real interest rate 0.0% 0.0% * Note: The public DSA allows for domestic financing to cover the additional financing needs generated by the shocks under the stress tests in the public DSA. Default terms of marginal debt are based on baseline 10-year projections. Sources: Country authorities; and staff estimates and projections. 1/ The most extreme stress test is the test that yields the highest ratio in or before 2029. The stress test with a one-off breach is also presented (if any), while the one-off breach is deemed away for mechanical signals. When a stress test with a one-off breach happens to be the most exterme shock even after disregarding the one-off breach, only that stress test (with a one-off breach) would be presented. 11 Table 3. Somalia: Sensitivity Analysis for Key Indicators of Public and Publicly Guaranteed External Debt, 2019–2029 (in percent) Projections 1/ 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 PV of debt-to GDP ratio Baseline 99 99 99 99 99 99 100 100 101 102 103 A. Alternative Scenarios A1. Key variables at their historical averages in 2019-2029 2/ 99 102 105 108 111 114 117 121 125 129 134 0 #N/A #N/A #N/A #N/A #N/A #N/A #N/A #N/A #N/A #N/A #N/A B. Bound Tests B1. Real GDP growth 99 101 104 104 104 105 105 106 107 108 109 B2. Primary balance 99 103 106 108 110 113 116 119 122 125 128 B3. Exports 99 102 106 106 106 106 106 107 108 108 109 B4. Other flows 3/ 99 101 104 104 104 104 104 105 106 106 107 B5. Depreciation 99 125 115 115 116 116 117 118 119 120 122 B6. Combination of B1-B5 99 110 114 114 114 114 114 115 115 116 117 C. Tailored Tests C1. Combined contingent liabilities 99 106 109 111 113 115 118 121 124 128 131 C2. Natural disaster n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. C3. Commodity price n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. C4. Market Financing n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Threshold 30 30 30 30 30 30 30 30 30 30 30 PV of debt-to-exports ratio Baseline 368 373 377 367 367 369 371 374 377 380 385 A. Alternative Scenarios A1. Key variables at their historical averages in 2019-2029 2/ 368 383 400 399 410 422 436 450 466 482 499 0 368 365 368 360 363 368 371 373 373 372 368 B. Bound Tests B1. Real GDP growth 368 373 377 367 367 369 371 374 377 380 385 B2. Primary balance 368 390 404 401 410 420 430 441 453 465 478 B3. Exports 368 424 494 479 480 482 484 487 491 494 499 B4. Other flows 3/ 368 382 396 384 385 386 388 390 393 396 399 B5. Depreciation 368 373 349 339 341 342 345 348 351 356 362 B6. Combination of B1-B5 368 411 398 432 433 434 436 439 441 444 448 C. Tailored Tests C1. Combined contingent liabilities 368 401 414 410 419 429 439 450 462 475 489 C2. Natural disaster n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. C3. Commodity price n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. C4. Market Financing n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Threshold 140 140 140 140 140 140 140 140 140 140 140 Debt service-to-exports ratio Baseline 18 19 19 19 20 20 21 22 23 23 24 A. Alternative Scenarios A1. Key variables at their historical averages in 2019-2029 2/ 18 19 20 20 21 22 23 24 25 27 29 0 18 18 19 19 19 20 21 22 23 24 24 B. Bound Tests B1. Real GDP growth 18 19 19 19 20 20 21 22 23 23 24 B2. Primary balance 18 19 20 20 20 21 22 23 24 26 27 B3. Exports 18 21 24 24 25 26 27 28 29 31 32 B4. Other flows 3/ 18 19 20 19 20 21 21 22 23 24 25 B5. Depreciation 18 19 19 19 19 20 21 21 22 22 23 B6. Combination of B1-B5 18 20 22 22 22 23 24 25 26 27 28 C. Tailored Tests C1. Combined contingent liabilities 18 19 20 20 20 21 22 23 24 25 26 C2. Natural disaster n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. C3. Commodity price n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. C4. Market Financing n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Threshold 10 10 10 10 10 10 10 10 10 10 10 Debt service-to-revenue ratio Baseline 66 67 66 64 64 63 64 64 64 64 65 A. Alternative Scenarios A1. Key variables at their historical averages in 2019-2029 2/ 66 112 107 102 100 98 98 98 98 99 100 0 114 108 101 96 93 91 90 89 88 87 85 B. Bound Tests B1. Real GDP growth 66 114 110 104 100 97 95 94 92 90 89 B2. Primary balance 114 112 106 101 97 94 94 94 94 94 94 B3. Exports 66 113 108 102 99 95 94 93 92 91 90 B4. Other flows 3/ 66 111 105 100 96 93 92 90 90 90 88 B5. Depreciation 66 140 132 121 117 113 112 111 109 101 100 B6. Combination of B1-B5 66 119 115 109 105 101 100 98 99 98 97 C. Tailored Tests C1. Combined contingent liabilities 114 112 107 101 98 95 94 93 92 90 89 C2. Natural disaster n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. C3. Commodity price n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. C4. Market Financing n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Threshold 14 14 14 14 14 14 14 14 14 14 14 Sources: Country authorities; and staff estimates and projections. 1/ A bold value indicates a breach of the threshold. 2/ Variables include real GDP growth, GDP deflator (in U.S. dollar terms), non-interest current account in percent of GDP, and non-debt creating flows. 3/ Includes official and private transfers and FDI. 12 Table 4. Somalia: Sensitivity Analysis for Key Indicators of Public Debt, 2019 –2029 (in percent) Projections 1/ 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 PV of Debt-to-GDP Ratio Baseline 100 100 100 100 100 100 101 101 102 103 104 A. Alternative Scenarios A1. Key variables at their historical averages in 2019-2029 2/ 100 102 108 114 122 130 140 151 164 178 195 0 #N/A #N/A #N/A #N/A #N/A #N/A #N/A #N/A #N/A #N/A #N/A B. Bound Tests B1. Real GDP growth 100 142 210 210 211 213 216 221 226 233 240 B2. Primary balance 100 96 95 93 92 92 92 92 93 95 96 B3. Exports 100 102 104 104 104 104 104 105 106 106 107 B4. Other flows 3/ 100 103 105 105 105 105 105 106 106 107 108 B5. Depreciation 100 125 121 117 114 112 110 108 107 107 107 B6. Combination of B1-B5 100 108 121 118 114 111 108 106 104 104 103 C. Tailored Tests C1. Combined contingent liabilities 100 99 97 96 95 94 94 95 96 97 99 C2. Natural disaster n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. C3. Commodity price n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. C4. Market Financing n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. TOTAL public debt benchmark 35 35 35 35 35 35 35 35 35 35 35 PV of Debt-to-Revenue Ratio Baseline 1,400 1,350 1,298 1,245 1,202 1,160 1,135 1,112 1,082 1,053 1,031 A. Alternative Scenarios A1. Key variables at their historical averages in 2019-2029 2/ 1,400 1,344 1,327 1,318 1,321 1,331 1,366 1,408 1,451 1,500 1,563 0 66 20 20 19 19 18 18 20 20 20 20 B. Bound Tests B1. Real GDP growth 1,400 1,613 1,886 1,844 1,816 1,796 1,801 1,813 1,822 1,834 1,857 B2. Primary balance 1,400 1,293 1,225 1,159 1,106 1,059 1,034 1,012 988 967 954 B3. Exports 1,400 1,368 1,347 1,292 1,247 1,202 1,176 1,151 1,119 1,086 1,061 B4. Other flows 3/ 1,400 1,382 1,361 1,305 1,258 1,214 1,187 1,162 1,128 1,095 1,069 B5. Depreciation 1,400 1,744 1,617 1,502 1,407 1,322 1,266 1,216 1,164 1,117 1,080 B6. Combination of B1-B5 1,400 1,390 1,410 1,321 1,241 1,167 1,114 1,069 1,024 985 954 C. Tailored Tests C1. Combined contingent liabilities 1,400 1,332 1,258 1,190 1,136 1,088 1,061 1,039 1,015 994 982 C2. Natural disaster n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. C3. Commodity price n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. C4. Market Financing n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Debt Service-to-Revenue Ratio Baseline 66 67 66 64 64 63 64 64 64 64 65 A. Alternative Scenarios A1. Key variables at their historical averages in 2019-2029 2/ 66 71 72 74 78 82 87 94 101 108 116 0 66 20 20 19 19 18 18 20 20 20 20 B. Bound Tests B1. Real GDP growth 66 84 101 102 104 105 108 113 117 122 127 B2. Primary balance 66 68 67 65 65 65 66 68 69 70 72 B3. Exports 66 67 66 65 64 64 64 65 65 67 67 B4. Other flows 3/ 66 67 66 65 65 64 65 65 66 67 67 B5. Depreciation 66 78 90 89 88 88 89 92 94 96 98 B6. Combination of B1-B5 66 72 77 76 76 76 76 77 78 78 79 C. Tailored Tests C1. Combined contingent liabilities 66 68 67 66 66 66 66 67 67 68 68 C2. Natural disaster n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. C3. Commodity price n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. C4. Market Financing n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Sources: Country authorities; and staff estimates and projections. 1/ A bold value indicates a breach of the benchmark. 2/ Variables include real GDP growth, GDP deflator and primary deficit in percent of GDP. 3/ Includes official and private transfers and FDI. 13