China EconomicMonitorIssue:2025 Q3August 2025 KPMG Huazhen LLP,a Peoples Republic of China partnersh.
2025-08-25
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Global Macro Outlook 1 Global Economic Research Global Macro Outlook Third Quarter 2025 The Macro Picture The global policy environment continued to change rapidly in the second quarter.The US imposed,then suspended,massive tariffs on all its major trading partners,leaving the eventual global trading regime uncertain.Geopolitical tension escalated sharply,with armed conflict continuing in Ukraine and starting in Iran late in the quarter.Central banks around the worldexcept the US Federal Reserve(Fed)cut interest rates in response to a deteriorating economic outlook.And despite all of that,most major asset prices ended the quarter more or less where they started after significant volatility along the way.In our view,the relative calm in financial markets is an uneasy one.While we cannot know the impact of geopolitical developments on the economy at this early stage,the resilience of both the economy and the financial markets to the prolonged war in Ukraine suggests that it would take something quite dramatic to change the existing paradigm.In the meantime,we believe that markets are waiting for more information about the impact that policy and geopolitical changes will have on the global economy rather than responding preemptively in such an uncertain world.As the year progresses,we will get more information about the impact that trade,fiscal and monetary policy changes will have on the global economy.Our forecast anticipates a slowdown in growth concentrated in the second half of this year.As growth slows,we expect that central banks will continue to ease policy,with the Fed likely to lower rates in the second half of the year as well.Those rate cuts will offset some of the damage that tariffs will cause,helping the global economy to avoid a recession.This doesnt mean that all is well,of course.Fiscal policy,particularly in the US,is on an unsustainable trajectory;we believe that the weakness of the dollar reflects concerns about the potential for longer-term structural changes that would be more important than any shorter-term fluctuations on which investors tend to focus.Starting with trade policy,weve previously noted and continue to expect that tariffs will slow growth everywhere,including the US.There are early signs of that in the data already;“softer”measures of activity such as consumer and business confidence surveys have deteriorated amid tariff-related news.The harder dataactual spending and investment activityare likely to follow suit later in the year.Within the United States,tariffs will push prices higher as all taxes tend to do,which has complicated the monetary policy calculation that the Fed must make.Slower growth argues for rate cuts,but higher prices would point in the opposite direction.Thus,even as inflation has slowed in the first half of the year,the Fed has been cautious and deferred rate cuts until they get more certainty about the magnitude of the impact tariffs will have on prices and on inflation expectations.We do expect easing in the coming quarters,and one consequence of a later start to the cycle is that its likely to proceed more rapidly and to go somewhat farther once it starts than would have been the case otherwise.We expect the Fed eventually to push its policy rate below 3.0%,somewhat lower than the market currently anticipates.Despite the fact that the Fed didnt cut rates in the first half,while other major central banks did,the dollar has depreciated significantly.The dollars weakness is a reminder that trade policy is only one part of the changing environment.In the aftermath of the April tariff announcement,many in financial markets have come to question the role of the dollar as a global reserve currency.The dollars unquestioned reign in that role has been based in part on the idea that US policy was process-oriented,predictable and rules-based.The shock that the tariff announcements engendered called all three of those ideas into question.Further,fiscal policy in the US seems set to deteriorate even further from what was already an unsustainable trajectory.The budget legislation currently under discussion in Congress is likely to add to the deficit,requiring even more debt issuance and increasing the possibility that investors will demand more compensation for holding US assets.The dollars weakness may be the early stages of that process.If it continues,higher interest rates may follow.There have been massive flows of capital into US financial markets in recent years;should those reverse or simply slow,it could have meaningful impacts on asset prices.Our base case is that the dollar remains the reserve currency of choice around the world.US financial markets should continue to benefit from the unparalleled depth and liquidity that they offer and thus will remain an attractive destination for global savings.Still,Contents The Macro Picture.1 Global Forecast.3 US.5 China.6 Euro Area.7 UK.8 Japan.8 Emerging Markets.9 Forecast Table.11 Contributors.12 Global Macro Outlook 2 the discussion around the role of the US in the world and the role of the dollar in financial markets will continue and,over time,the potential for changes in those roles may prove to be more important than anything that happens in the shorter term.The debate about the dollar is also a timely reminder that it isnt only policy changes in the US that matter.Global savings are held,by and large,in Asia,and any changes to reserve management policy could be just as impactful as anything that the US does in terms of trade or fiscal policy.The Trump administration is correct that the US economy is relatively more sheltered from the fallout of the trade war than other major economies.But we would caution that the US is more exposed to changes in global investment patterns than are other countries.China has the ability to influence events beyond its borders with policy changes.Reducing or stopping the flow of capital from China to US financial markets would be very disruptivecapital inflows to the US have been one of the defining features of the last few years.The US has leverage over China in trade policy,but China has leverage over the US in financial policy.To be clear,there are as yet no signs that China is using or intends to use its leverage to disrupt the US market.But its a topic that warrants close watching,given how impactful any change could be.Leaving aside the possibility of structural changes to reserve management,nearer-term changes to monetary policy are already well underway outside the US.If the calculation for the Fed has been complicated by the possibility that tariffs will raise domestic prices,the opposite is true elsewhere.If Chinese exports are redirected away from the US and toward other major economies,prices outside the US may fall rather than rise as the trade war progresses.While the US may have slower growth and higher prices,Europe especially seems set to see slower growth and lower prices.With both major monetary policy variables pointing the same direction,the European Central Bank(ECB)has steadily cut rates in the last few months and likely has more cuts to make.The same is true of other major economies.There have been rate cuts throughout the dollar bloc,in Scandinavia and in many emerging markets as well.The magnitude of the easing cycle will eventually be determined by the extent of the economic slowdown underway.Because we expect that slowdown to be moderate,we think that most central banks will be able to stop cutting rates without reaching the sorts of crisis levels that prevailed during and immediately after the pandemic and the financial crises that defined the last two recessions.Importantly,we expect that rate cuts around the world will work to stabilize the economy.Our forecasts show growth inflecting upward in 2026 after slowing later this year.That expectation relies heavily on the trade war being largely resolved in the next few months and include lower trade barriers than those announced in early April.In order to resume capital expenditures and fixed investment spending,businesses around the world need to be confident that they know what the rules of the road will be.If trade-related uncertainty persists,or if the end result of the trade war is something close to the tariffs announced and then suspended in early April,a recession will become more likely.In the meantime,investors are likely to watch and wait to see how it all shakes out.Our base case is relatively benign,with geopolitical risks not derailing the economy,structural shifts in reserve management not disrupting financial markets,and trade policy slowing but not stopping growth,with easier monetary policy offsetting some of the damage.Its a challenging environment but one that presents opportunities as well as risks for investors willing to look past the headlines and to stomach some volatility in financial markets.Global Macro Outlook:The Next Six Months Economic Activity The global growth slowdown will become more evident in the second half of the year as tariffs start to bite.Inflation US inflation will pick up as tariffs take hold,but inflation outside the US will continue to decelerate as slower growth reduces demand.Monetary Policy Central banks around the world will continue to ease policy toward neutral,with the FOMC joining in later this year.Weak Strong Trend Deflation Overshoot Target Easy Tight Neutral Global Macro Outlook 3 Global Forecast Forecast Overview Real GDP Growth CPI Inflation 2025 2026 2025 2026 US 0.5 1.5 3.8 2.7 Euro Area 0.8 0.9 2.1 1.8 Japan 0.8 1.0 2.6 2.0 China 4.3 4.3 0.5 1.0 Global 2.1 2.1 3.4 2.8 Industrial Countries 1.1 1.1 3.1 2.4 Emerging Countries 3.5 3.7 3.9 3.6 EM ex China/Russia 3.2 3.5 7.2 6.2*US GDP forecasts presented as 4Q/4Q;others YoY;US CPI reflects core inflation;others are headline.As of January 2,2024 Source:AllianceBernstein(AB)Key Assumptions Financial:We assume no dramatic change to global reserve management that would upend financial markets.Geopolitical:We assume oil prices will not move sharply higher or stay sharply higher in response to conflicts in Ukraine or the Middle East.Monetary Policy:Central banks are set to continue cutting rates,with the Fed likely to join later this year.For now,rate cuts will push policy toward neutral rather than through it,though that may change in 2026.Central Narrative Global Growth:Trade policy and uncertainty are weighing on growth and will continue to do so for the foreseeable future.Inflation:Underlying inflationary pressure is easing in the US and is lower elsewhere,but tariffs could push US prices higher.Yields:Global yields seem set to fall as inflation declines and rate cuts continue;the US is a less clear case.USD:The risk of structural change should push the USD lower,though rate differentials will provide some offset.Key Upside Risks A resolution to the trade war could unlock business investment.If geopolitical conflict proves short-lived,that could boost sentiment.Key Downside Risks The situation in Iran could push energy costs sharply higher.The market appears to assume that trade negotiations will be successful.If not,reconsidering that assumption could be painful.The US budget debate could push investors out of US assets.AB Growth and Inflation Forecasts(Percent)Global Macro Outlook 4 Forecasts Through Time As of June 30,2025 Source:AB As of June 30,2025 Source:AB US Real GDP(%)Inflation(%)Policy Rate(%)10-Yr.Bond Yield(%)2025F 2026F 2025F 2026F 2025F 2026F 2025F 2026F US 0.5 1.5 3.8 2.7 3.63 2.63 4.0 3.75 The US economy was largely steady in the second quarter,but consumer and business sentiment surveys suggested expectations of a deterioration to come,largely driven by trade and tariff policy.Price pressures continued to abate,with core inflation moving toward cycle lows.The impact of tariffs has yet to be felt and it seems likely that pressures will mount as businesses work through inventory that was brought in ahead of time.The labor market remains strong,allowing the Fed to take a wait-and-see approach to the impact of tariffs.While most forecasters anticipate higher prices and slower growth,the Fed needs to see evidence before committing to a forward path.Risk Factors Trade negotiations are ongoing,and if deals are not struck with important trading partners,tariff rates could revert to those announced in early April,likely disrupting the economy significantly.Tariffs are likely to bring higher prices;if those prices contaminate longer-term inflation expectations it could prevent the FOMC from easing monetary policy in the event of a slowdown.The role of the dollar in global financial markets appears more precarious than it has been as a result of abrupt policy changes and fiscal indiscipline.Decreased global demand for dollars would impact financial markets more broadly,slowing growth.Overview At a superficial level,things seem more or less okay for the US economy.Hard data show very little disruption from the tariffs announced and then delayed in early April,the labor market remains strong and inflationary pressures have eased.Beneath the surface,however,the water is not calm.Tariffs have been delayed,not cancelled,sentiment surveys have deteriorated,fiscal policy seems set to increase deficits and indebtedness and the role of the dollar is in question.A little bit of policy predictability would go a long way,especially if it were to be accompanied by a renewed willingness to abide by the implicit rules of the global system,but neither seems to be in store in the near term.The result is an outlook that remains murky.We dont know yet whether the impact of tariffs will be greater on growth or on inflation,we dont know whether the administration will resume constructive rather than confrontational relations with friend and foe alike,and we dont know whether markets will be able to digest an ever-growing pile of Treasury debt.The next few months will be telling.The good news is that the starting point is relatively strong.The economy is for now in something like equilibrium,with the labor market balanced and both inflation and inflation expectations stable.The Fed has ample room to cut rates to stimulate growth when it becomes necessary;we anticipate this will happen in the coming months.The bigger question around the willingness of international markets to treat US assets as risk-free and the dollar as the reserve currency is unlikely to be resolved in the near term,but it also seems unlikely to be disruptive over the next few months.That gives the administration time to resolve trade policy,it gives markets time to digest the cost of rising deficits,and it gives the Fed time to see how it all shakes out before committing to a next step.While its easy to focus on the risks around the base case,its worth remembering that the base case is fairly benign:a 1.01.52.02.53.0Jan 23Jul 23Dec 23Jun 24Dec 24Jun 252.02.53.03.54.0Jan 23Jul 23Dec 23Jun 24Dec 24Jun 25AB Global Growth Forecasts by Vintage AB Global Inflation Forecasts by Vintage 2025 2026 2024 2025 2026 2024 Global Macro Outlook 5 modest slowdown cushioned by easier monetary policy which paves the way for a reacceleration in 2026.Despite all the turbulence in the last few months,we continue to believe that is the most likely outcome over time.As of June 30,2025 Source:AB As of June 30,2025 Source:AB 2015105051970198319962009202220350246810121416199920052010201520202025US Deficit US Unemployment(Percent)Forecast Global Macro Outlook 6 China Real GDP(%)Inflation(%)Policy Rate(%)10-Yr.Bond Yield(%)FX Rates vs.USD 2025F 2026F 2025F 2026F 2025F 2026F 2025F 2026F 2025F 2026F China 4.3 4.3 0.5 1 1 1.25 2 2.25 7.2 7.2 Outlook Chinas economic outlook is uncertain,with much depending on the resolution of trade negotiations with the US.For now,there are signs in the data that the tariffs currently in place are having an impact:growth is slowing.As growth has slowed,so too has inflation.Both CPI and PPI are negative in YoY terms,and the net result is a very slow rate of nominal GDP growth,meaning that China is acting as more of a drag than a support to the global economy for now.Policymakers are responding to the challenge with easier conditions,primarily by injecting liquidity into the system.Important policy meetings are due in the next few months that will give more details about how far policymakers are willing to go to keep growth on track.Risk Factors Domestic sentiment is weak,and the impact of deflation on house prices in particular suggests that it will remain so.If trade to the US is limited by tariffs,domestic consumers appear ill-positioned to pick up the demand slack.Geopolitics are an ever-present risk in the face of an unpredictable global environment.If energy prices rise in response to global tensions,it would be another blow to an already weak economy.Overview Chinas economy remains soft,and trade tensions pose more downside risk.Until its clear what the eventual result of the trade negotiations between the US and China is,formulating a clear expectation for the economy will be very difficult.A modest increase in tariffs can likely be offset by policy stimulus,but a more severe application of trade restrictions would be quite hard to overcome.While we wait for the resolution of the negotiations,the behavior of Chinese policymakers suggests that we should expect the economy to muddle through for the time being.Theres support on the way,but for now its limited to curtailing the risk of a sharp deceleration rather than doing much to inject economic upside into the equation.We expect that more support will be both necessary and forthcoming no matter the fate of trade policy but given the wide range of outcomes we dont blame Chinese authorities for taking a measured approach for the time being rather than guessing at what will come to pass.In the meantime,the domestic economy remains soggy and downward pressures on prices persist.Housing assets are key to consumer behavior and low sentiment in China along with deflation arent helping the situation.There are significant policy meetings over the summer that are expected to set the economic agenda for the remainder of the year,but until there is clarity on trade,any policy announcements should be considered preliminary rather than permanent.The economy is in limbo for now,and so too are policymakers.As of June 30,2025 Source:LSEG Datastream As of June 30,2025 Source:LSEG Datastream 105051015Jun 20Jun 21Jun 22May 23May 24May 251.00.50.00.51.01.52.0May 15May 17May 19May 21May 23May 25China Inflation(Percent)Change in New Home Prices(Percent)PPI CPI Global Macro Outlook 7 Euro Area Real GDP(%)Inflation(%)Policy Rate(%)10-Yr.Bond Yield(%)FX Rates vs.USD 2025F 2026F 2025F 2026F 2025F 2026F 2025F 2026F 2025F 2026F Euro Area 0.8 0.9 2.1 1.8 1.75 1.75 2.2 2.4 1.14 1.16 Outlook We expect growth to be weak in 2025,while a recession cannot be excluded.Given recent communication,tariffs on the EU could stand anywhere between 20%and 50%.From 2026,the outlook for growth should brighten,mostly driven by Germanys fiscal expansion.Inflation has sustainably reached its target as of now.Undershooting risks in the medium term are on the rise and could become entrenched.The ECB reached neutral territory but is not done with easing.We expect at least one more cut this year with risks of more cuts more likely than less.Risk Factors Geopolitical events pose a major risk to energy prices and could lead to higher imported inflation.That said,a strong euro would help limit the inflationary impact.Higher spending in Germany represents a clear upside risk to our medium-term outlook.However,the plan could disappoint if not implemented and allocated efficiently,in which case the boost to growth could be delayed.Overview Europe continues to face downside risks to growth as uncertainty ahead of the end of the 90-day tariffs looms.Negotiations on that matter have reached nowhere thus far,and recent communication suggests that expecting 10%tariffs is too optimistic.Obviously,recession probability and intensity increase with the level of tariffs and cannot be excluded,even if only short-lived and mild.Not to mention that tariff-related export front-loading that boosted GDP growth figures in the first quarter,and likely in the second,will reverse in the second half of the year and consequently drag growth down.And while inflation is now sustainably at target and rates at neutral,households are still reluctant to consume even as their saving rate remains high.That said,medium-term growth should benefit from expansionary fiscal policy in Germany.Indeed,infrastructure and,to a lesser extent,defense spending announced in March should provide much-needed support to the largest European economy,improving overall regional growth.Implementation strategy will be key to determine the overall efficiency of fiscal reforms from 2026 onwards and the second half of 2025 should see more details and clarity.The ECB has now reached a comfortable level of rates that is within the range of estimated neutral.Thats not to say that the ECB is done with its cutting cycle,but rather it is ready to slow it down.Given downside risks to growth but also that inflation is sustainably back to target,the case for further cuts is still valid.Especially in a context where medium-term undershooting risks are on the rise.While the ECB forecasts an undershoot in 2026 driven by lower energy prices and a strong euro,it is so far reluctant to adjust its reaction function as the undershoot is seen as temporary.That said,I think the central bank will eventually need to be proactive and avoid undershooting risks of being entrenched.With GDP growth remaining weak and wage growth significantly normalizing by the end of the year,underlying domestic prices could become a source of strong disinflation.Global Macro Outlook 8 As of June 25,2025 Source:ECB and AB As of June 6,2025 Source:Bundesbank and AB UK Real GDP(%)Inflation(%)Policy Rate(%)10-Yr.Bond Yield(%)FX Rates vs.USD 2025F 2026F 2025F 2026F 2025F 2026F 2025F 2026F 2025F 2026F UK 0.9 1.1 3.3 2.5 3.75 3.25 4.5 4 1.35 1.35 Overview In the UK,the balance of risks remains tilted to the downside.While the direct impact of tariffs is likely to be more contained than in Europe,uncertainty still weighs,and a global growth slowdown is a negative exogenous factor to consider.Meanwhile,domestic growth drivers remain muted,and survey indicators suggest that this is likely to last for the quarters ahead.Although their financial situation is perceived to have improved,households recently increased their saving intentions,further depressing consumption.The labor market continues to ease and might not be too far from weakening.All indicators taken together,regardless of their quality limitations,point in an unfavorable direction.Meanwhile,CPI inflation started to be affected by cost push factors and higher gas and electricity price caps,and we expect it to remain above 3%for the remainder of the year.The risks of second-round effects so far appear to be very limited,which should allow core disinflation to proceed,albeit at a slow pace.The Bank of Englands(BoE)reaction function is more skewed towards domestic inflationary risks,and quarterly cuts remain the most appropriate approach to removing monetary policy restrictiveness.If growth slows more rapidly towards the end of the year,the BoE could be forced to react more forcefully and to expedite cuts.The central bank is also increasingly likely to announce a reduction in quantitative tightening(QT)for September 2025 to September 2026,as its balance sheet is approaching its pre-pandemic level.This would also help alleviate gilt-market volatility that will resurface around the Autumn Budget discussions,as the Chancellor will have to find new measures to restore the headroom towards her fiscal target.Japan Real GDP(%)Inflation(%)Policy Rate(%)10-Yr.Bond Yield(%)FX Rates vs.USD 2025F 2026F 2025F 2026F 2025F 2026F 2025F 2026F 2025F 2026F Japan 0.8 1 2.6 2 0.75 1 1.7 2 135 130 Overview The Japanese economy remains off-cycle with most of the rest of the developed world.After a decade of wrestling with deflation,the Bank of Japan(BOJ)has raised rates in recent quarters even as most other central banks have cut them.As its economy continues to normalize,interest rates across the curve are moving higher as well for the first time in many years.That has increased investor focus on Japan,with many wondering how long the economy can withstand a less favorable global environment and allow rates to continue moving up.Our answer is that the trend can continue for the time being,but not indefinitely.We think there is only limited scope for the BOJ to continue with rate increases and suspect that inflation is unlikely to demand that they do so beyond the next few quarters.0123456201820192020202120222023202420251.1%1.0%4.1%3.7%1.4%0.3%0.2%0.0%0.7%1.2010110210310410510610718192021222324252627YoY Percent ChangeECB Wage Tracker(Year-over-Year Percentage)German GDP(2020=100)Including Smoothed One-Offs Forecast Services Inflation Ex.One-Offs Global Macro Outlook 9 Emerging Markets Real GDP(%)Inflation(%)Policy Rate(%)10-Yr.Bond Yield(%)FX Rates vs.USD 2025F 2026F 2025F 2026F 2025F 2026F 2025F 2026F 2025F 2026F EM ex China/Russia 3.2 3.5 7.2 6.2 10.02 8.74 8.77 8.42 Asia 4.3 4.8 2.9 3.3 4.29 4.34 5.11 5.3 LATAM 1.7 1.8 8.2 6.2 14.27 11.84 10.45 9.54 EEMEA 1.9 2.2 13.4 10.4 17.67 14.47 9.33 8.69 Outlook The crystallization of higher tariffs,trade normalization and relatively tight monetary policy are likely to contribute to a sharp slowdown in economic growth over the next couple of quarters The weak growth backdrop will,in our view,support further monetary easing in emerging markets(EM)Risk Factors EMs fiscal dynamics remain vulnerable to a slowdown in economic activity Conflict risks in the Middle East remain elevated We expect below-trend growth in EM in 2025,but the second half of the year is when the chickens could come home to roost.The crystallization of higher tariffs,trade normalization and relatively tight monetary policy are likely to contribute to a sharp slowdown in economic growth over the next couple of quarters.The weak growth backdrop will,in our view,support further monetary easing in EM(see Figure 1).While below-potential economic growth is common,inflation dynamics range from relatively uncomfortable(Brazil,Colombia,Romania)to subdued(India,Indonesia,South Africa).Target-friendly inflation looks most secure in Asia,with persistent powerful disinflationary impulses in China.Structural inflation risks lingerfueled by higher tariffs and shifts in global tradebut cyclical softening is expected to be a powerful disinflationary driver over the next six to 12 months.While economic growth is projected to slow sharply in the second half of the year,EMs external buffers are generally quite strong,which could alleviate fundamental pressures on EM asset prices.The relatively strong external positions in EM follow the frontloading of trade,strong remittance inflows,and favorable valuation effects of reserves because of higher gold prices.Chinaand Asia in generalhas recorded impressive current account surpluses early in the year(see Figure 2),but the positive external dynamics and reserve build-up have also been observed across several frontier markets.EMs external position might deteriorate somewhat over the next few quarters if trade normalizes and higher tariffs come into effect.We do,however,think that US dollar depreciation remains likely over the next six to 12 months,which should alleviate external financing pressure.The fiscal side of the equation remains more vulnerable and susceptible to a slowdown in economic activity.Since Israels preemptive strike on Irans nuclear facilities and military assets on June 13,followed a week later by US attacks on three key nuclear installations(Fordow,Natanz,and Isfahan),conflict risks in the Middle East have remained elevated.Although Israel and Iran entered a fragile ceasefire brokered by US President Trump,initial assessments indicate that the US strikes failed to fully dismantle Irans nuclear program,leaving Israels and the USs primary war objectives potentially unresolved.In particular,reports citing a classified Pentagon assessment suggest Irans nuclear program has been delayed by several months at most.A critical risk now is that these strikes may prompt the Iranian regime to accelerate its nuclear development in pursuit of a tangible nuclear deterrent.If Israel and the US perceive such a risk as credible,renewed interventions could occur.Escalation would carry significant additional dangers,including potential damage to Irans oil infrastructure andin an extreme scenariodisruptions to critical regional transportation routes,notably the Strait of Hormuz.While Iran itself relies on the strait for global oil shipments and revenues,making a blockage counterproductive to its economic interests,such disruptions could nevertheless amplify global economic pressures through higher oil prices and sustained geopolitical instability.Global Macro Outlook 10 As of June 30,2025 Source:Bloomberg and AB As of June 30,2025 Source:Haver Analytics and AB 051015204002000200400600THMYCZPECLPHPLINIDROHUZAMXCOBRPercentBasis PointsOne Year Change(Left Scale)Current Rate864202461516171819202122232425Percent of GDPEM Policy Rates&Changes EM Current Account Balances Asia CEEMEA LatAm China Global Macro Outlook 11 Forecast Table Real Growth(%)Inflation(%)Official Rates(%)Long Rates(%)FX Rates vs.USD 2025F 2026F 2025F 2026F 2025F 2026F 2025F 2026F 2025F 2026F Global 2.1 2.1 3.4 2.8 4.15 3.49 3.91 3.85 Global ex Russia 2.1 2.2 3.3 2.8 3.77 3.25 3.94 3.94 Industrial Countries 1.1 1.1 3.1 2.4 2.95 2.28 3.32 3.22 Emerging Countries 3.5 3.7 3.9 3.6 5.92 5.32 4.8 4.81 EM ex China 2.9 3.2 7.3 6 10.8 9.25 7.71 7.37 EM ex China/Russia 3.2 3.5 7.2 6.2 10.02 8.74 8.77 8.42 US 0.5 1.5 3.8 2.7 3.63 2.63 4 3.75 Percent of Year-over-Year Methodology 1.3 1.1 Canada 1.2 1.3 2.2 2.2 1.75 1.5 2.5 2.5 1.33 1.3 Europe 0.8 0.9 2.3 1.9 2.14 2.03 2.65 2.7 1.19 1.2 Euro Area 0.8 0.9 2.1 1.8 1.75 1.75 2.2 2.4 1.14 1.16 UK 0.9 1.1 3.3 2.5 3.75 3.25 4.5 4 1.35 1.35 Japan 0.8 1 2.6 2 0.75 1 1.7 2 135 130 Australia 1.5 2.4 2.6 2.7 3.35 3.1 4 3.75 0.68 0.7 New Zealand 1 2.5 2.2 2.2 2.75 2.75 4 4 0.65 0.67 China 4.3 4.3 0.5 1 1 1.25 2 2.25 7.2 7.2 Asia ex Japan&China 4.3 4.8 2.9 3.3 4.29 4.34 5.11 5.3 India 5.9 6.2 4.2 4.5 5.5 5.5 6.3 6.5 85 85 Indonesia 4.6 4.9 1.7 2.5 5 5 6.5 6.9 15,900 16,200 Korea 0.9 1.8 2 1.9 2 2 2.5 2.3 1,370 1,318 Thailand 2.1 2.2 0.7 1 1.4 1.3 1.76 1.62 33 32.2 Latin America 1.7 1.8 8.2 6.2 14.27 11.84 10.45 9.54 Argentina 5 4 35 25 45 35 1,350.00 1,500.00 Brazil 2 1.7 5.3 4.3 15 13 13.25 12.5 5.4 5.2 Chile 2.2 2 4.4 3.5 4.5 4 5.45 5 900 875 Colombia 2.8 2.6 4.7 3.5 8.25 7.5 11.5 10.5 4,100 3,900 Mexico-0.5 0.9 4.3 3.8 7 6.5 8.5 8 19 18.8 EEMEA 1.9 2.2 13.4 10.4 17.67 14.47 9.33 8.69 Hungary 1.6 2.5 5.5 4.4 6 4.5 6.6 6 399 391 Poland 3.2 3.1 4.5 3.6 4.75 3.75 5 4.7 4.22 4.18 Russia 1.2 1.4 8.3 5.8 18 15 85 85 South Africa 1 1.4 3.2 4.3 6.75 6.75 9.75 10.2 17.4 18 Turkey 2.7 3.2 35 27 35 28 29 26 43 50 Growth and inflation forecasts are calendar-year averages except US GDP,which is forecast as 4Q/4Q.Interest-rate and FX rates are year-end forecasts.Long rates are 10-year yields unless otherwise indicated.The long rates aggregate excludes Argentina and Russia;Argentina is not forecast due to distortions in the local financial market;Russia is not forecast because the local market is inaccessible to foreign investors.Real growth aggregates represent 29 country forecasts,not all of which are shown.Global Macro Outlook 12 Contributors Eric Winograd Adriaan du Toit Sandra Rhouma Armando Armenta Markus Schneider 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Boosting Domestic Revenue MobilizationTO ENHANCE SERVICE DELIVERY AND STRENGTHEN THE SOCIAL CONTRACT SOMALIA ECONOMIC UPDATE10TH EDITION,JUNE 2025Public Disclosure AuthorizedPublic Disclosure AuthorizedPublic Disclosure AuthorizedPublic Disclosure AuthorizedBoosting Domestic Revenue MobilizationTO ENHANCE SERVICE DELIVERY AND STRENGTHEN THE SOCIAL CONTRACT SOMALIA ECONOMIC UPDATE10TH EDITION,JUNE 2025Boosting Domestic Revenue MobilizationTO ENHANCE SERVICE DELIVERY AND STRENGTHEN THE SOCIAL CONTRACT SOMALIA ECONOMIC UPDATE10TH EDITION,JUNE 2025 2025 International Bank for Reconstruction and Development/The World Bank 1818 H Street NW Washington DC 20433 Telephone:202-473-1000 Internet:www.worldbank.org This work is a product of the staff of The World Bank with external contributions.The findings,interpretations,and conclusions expressed in this work do not necessarily reflect the views of The World Bank,its Board of Executive Directors,or the governments they represent.The World Bank does not guarantee the accuracy,completeness,or cur-rency of the data included in this work and does not assume respon-sibility for any errors,omissions,or discrepancies in the information,or liability with respect to the use of or failure to use the information,methods,processes,or conclusions set forth.The boundaries,colors,denominations,and other information shown on any map in this work do not imply any judgment on the part of The World Bank con-cerning the legal status of any territory or the endorsement or accept-ance of such boundaries.Nothing herein shall constitute or be construed or considered to be a limitation upon or waiver of the privileges and immunities of The World Bank,all of which are specifically reserved.Rights and Permissions The material in this work is subject to copyright.Because The World Bank encourages dissemination of its knowledge,this work may be re-produced,in whole or in part,for noncommercial purposes as long as full attribution to this work is given.Any queries on rights and licenses,including subsidiary rights,should be addressed to World Bank Publications,The World Bank Group,1818 H Street NW,Washington,DC 20433,USA;fax:202-522-2625;e-mail:pubrightsworldbank.org.Cover design,interior design and typesetting:Piotr Ruczynski,London,United Kingdom,prucz.co.ukCover and chapter photos:World Bank,Dominic Chavez/World BankContentsv Forewordvi Hordhacvii Acknowledgementsix Abbreviations and Acronyms 1 Executive Summary7 Soo koobida Hawl fulinta15 PART I Somalia Macroeconomic Summary16 1 Global and Regional Developments17 2 Recent Economic Developments in Somalia28 3 Medium-Term Outlook and Risks33 4 Conclusion and Summary Policy Options 37 PART II Domestic Revenue Mobilization for Enhanced Service Delivery and Social Contract38 5 Somalias State Affordability and Service Delivery Capacity 44 6 Opportunities and Constraints in Domestic Resource Mobilization 2025 203054 7 Policy Recommendations 56 References Figures18 FIGURE 2.1Somali economic growth remains too modest to make much of an improvement in living standards18 FIGURE 2.2Demand growth drivers:contribution to GDP growth19 FIGURE 2.3Agriculture production continues to recover from the 2020 23 severe drought19 FIGURE 2.4Inflationary pressures eased,driven by decline in food prices20 FIGURE 2.5Poverty reduction is projected to stagnates,hindered by food insecurity caused by unfavorable weather and reduced humanitarian aid.21 FIGURE 2.6Somali banking sector continues to grow but at a slower pace22 FIGURE 2.7Recovery in international trade contin-ued in 2024 supporting the weak external sector22 FIGURE 2.8Workers remittances have remained relatively resilient to recurrent shocks23 FIGURE 2.9Percentage growth in 2024 actual reve-nues,compared to 2023 outturns and 2024 budget24 FIGURE 2.10FGS spending remains unchanged dominated by wage bill,security,and administrative costs 26 FIGURE 2.11The 2025 budget is primarily supported by externally funded projects.26 FIGURE 2.12Total expenditure increased due to heightened capital investments and operational costs29 FIGURE 3.1Real GDP growth38 FIGURE 5.1Snapshot of service delivery levels in 2023 2024 39 FIGURE B5.1.1Access to improved water and sanita-tion39 FIGURE B5.1.2Access to education and health care41 FIGURE 5.2Medium-term scenarios with estimated FGS resource envelope42 FIGURE 5.3High-level illustrational scenarios with FGS estimated resource envelope and integrated level of domestic revenues42 FIGURE 5.4High-level illustrational scenarios with FGS plus FMS estimated resource envelope,and off-budget ODA43 FIGURE 5.5Simplified view of actors and functions45 FIGURE 6.1Revenues by source and FGS/FMS,2019 2022 average51 FIGURE 6.2Number of authorities to which taxes are paid51 FIGURE 6.3Authority to which tax is paid53 FIGURE 6.4How to make complying with tax obliga-tions easier Tables24 TABLE 2.1Government fiscal operations,2019 2024 25 TABLE 2.2Fiscal operations at subnational govern-ments in 2024 27 TABLE 2.3Public and publicly guaranteed debt and debt service,2022 2025 40 TABLE 5.1High-level illustrative coverage scenarios44 TABLE 6.1Revenue profile by FGS and FMS,2023 Boxes39 BOX 5.1Access to services among the poor47 BOX 6.1Country practices.Increases in tax reve-nues following tax policy and administration reforms52 BOX 6.2Al-Shabab taxation the main elements and performance featuresForewordSomalia continues to make important strides in advancing its economy and institutions.Following the comple-tion of Heavily Indebted Poor Countries Initiative in 2023 and the accession to the East African Community(EAC)in 2024,Somalia has developed and started the implementation of an ambitious National Transformation Plan(NTP)2024 2029.The NTP is designed to promote inclusive economic growth and generation of jobs,strengthen institutions,and support resilience to climate shocks.The NTP is aligned with Somalias Centennial Vision 2060,which charts out institutional and socio-economic reforms that would help Somalia become a middle-income country by 2060.The national socio-economic transformation sought by Somalias NTP hinges on accelerating domestic reve-nue mobilization to advance state-building and provide more and better services to Somali citizens.Boosting domestic revenue is essential to improve the social contract between the government and Somali citizens across the country,invest in human capital development and infrastructure in support of long-term growth,and reduce reli-ance on foreign aid.Recent efforts show potential for increasing revenue,but sustained reforms in tax administra-tion,customs,and fiscal federalism are needed.In this context,Somalias economic prospects are showing signs of improvement,despite the pace of growth remaining modest.Specifically,the economy is experiencing a rebound,inflationary pressures have diminished,and fiscal performance has shown progress.The outlook remains positive,with expectations for continuing eco-nomic growth,though at a moderate rate.However,despite Somalias strides towards recovery,there are signifi-cant risks to the outlook,including uncertain aid flows,climate vulnerabilities,and political and security threats.The 10th edition of the World Banks Somalia Economic Update(SEU)assesses key economic developments,prospects,and policies in Somalia.It looks at recent macroeconomic and poverty developments and assesses the risks and opportunities for the medium-term growth outlook.In its special topic,it focuses on policies for domes-tic revenue mobilization.The SEU is intended for a wide audience including policy makers,business leaders,the community of analysts and professionals engaged in economic debate,and the public.This SEU tackles the Domestic Revenues Mobilization challenges to Enhance Service Delivery and Strengthen the Social Contract.It emphasizes the importance of boosting domestic revenue collection for fostering sustained and long-term growth and proposes directions for reforms.Key policy recommendations include strengthening domestic revenue mobilization efforts to increase the revenue-to-GDP ratio by 2030 through expanding the tax base,modernizing collection of taxes and customs revenue,finalizing the fiscal federalism framework,and coordinating effectively Official Development Assistance(ODA).Additionally,enhancing public service delivery will play a criti-cal role in reinforcing the social contract and supporting Somalias strategic vision for growth and stability.Kristina Svensson Country Manager,World Bank Somaliavvi|Somalia Economic UpdateHordhacSoomaaliya waxay sii waddaa in ay samayso horukac muhiim ah ee ah horumarka dhaqaalaheeda iyo hayaddeeda.Ka dib dhammaystirka Hindisaha Waddamada Faqiirka ah ee deymaha badan lagu leeyahay ee 2023 iyo ku biirista Bulshada Bariga Afrika(EAC)gudaha sanadkii 2024,Soomaaliya waxay samaysay oo billowday hirgelinta hamiga sare leh ee Qorshaha isbeddelka Qaran(NTP)2024 2029.NTP waxaa loogu talagalay in sare loogu qaado koboca dhaqaalaha oo loo dhan yahay iyo abuurista shaqooyin,xoojinta hayadaha,oo waxay taageertaa u adkaysiga cimilada aadka u qalafsan.NTP wuxuu la jaan qaadayaa Hiigsiga Qarniga ee Soomaaliya ee 2060,taas oo qorsheenaysa isbeddelada hayadaha iyo dhaqaalaha dhaqan-dhaqaale ee Soomaaliya ka caawin doona inay noqoto waddan dhaqaalahoodu dhex-dhexaad yahay 2060-ka.Isbeddelka dhaqan-dhaqaale ee qaran ee uu raadinayo NTP-da Soomaaliya waxa uu ku xidhan yahay dardargelinta ururinta dakhliga gudaha si loo hormariyo dowlad-dhisidda iyo siinta muwaadiniinta Soomaaliyeed adeegyo badan oo ka sii wanaagsan.Kobcinta dakhliga gudaha waa lagama maarmaan si loo horumariyo qandaraaska bulsho ee u dhexeeya dowladda iyo muwaadiniinta Soomaaliyeed ee ku nool guud ahaan dalka,maalgelinta horumarinta raasamaal aadamaha iyo kaabayaasha si loo taageero kobaca xiliga dheer,iyo in la yareeyo ku tiirsanaanta kaalmada shisheeye.Dadaaladii ugu dambeeyay waxay muujinayaan suuragal ahaanshaha dakhliga kordhaya,laakiin dib-u-habaynta joogtada ah ee maamulka canshuuraha,kastamada cashuuraha,iyo xidhiidhada maaliyadeed ee federaalka ayaa loo baahan yahay.Xaaladdan oo kale,rajada dhaqaalaha ee Soomaaliya waxay muujinaysaa calaamadaha horumarka,ka sakow xawliga kobaca oo ah weli mid dhexdhexaad ah.Gaar ahaan,dhaqaaluhu wuxuu la kulmaa dib u soo kabasho,cadaadiskii sicir-bararka wuu yaraaday,waxqabadka maaliyadeed wuxuu muujiyay horumar.Aragtida ayaa weli ah mid wanaagsan,irajada laga qabo in la sii wado kobaca dhaqaalaha,inkasta oo uu yahay heer dhexdhexaad ah.Si kastaba ha ahaatee,ka sakow Soomaaliya tallaabooyinka ay u qaaday dhanka soo kabashada,waxaa jira khataro badan oo ku wajahan aragtida,oo ay ku jiraan qulqulka gargaarka oo aan la hubin,u nuglaanshaha cimilada,iyo khataro siyaasadeed iyo amni.Daabacaaddii 10-aadee Warbixinta U dambaysay ee Dhaqaalaha Soomaaliya ee Bangiga Adduunka(SEU)waxa ay qiimaynaysaa horumarka dhaqaalaha,rajooyinka iyo siyaasadaha muhiimka ah ee Soomaaliya.Waxa ay eegtaa qaybta dhaqaalaha dhawayd iyo horumarinta saboolnimada waxayna qiimaynaysaa khataraha iyo fursadaha wixii ah muuqaalka koboca xiliga dhexe.Gudaha mowduuceeda gaarka ah,waxay xooga saaraysaa xeerarka soo ururinta dakhliga gudaha.SEU waxaa loogu talagalay shacbi waynaha oo ay ku jiraan xeer dejiyeyaal,hoggaamiyeyaasha ganacsiga,bulshada falanqeeyayaasha iyo xirfadlayaasha ku hawlan doodda dhaqaalaha,iyo dadweynaha.SEU-kan waxa uu wax ka qabtaa caqabadaha Soo ururinta Dakhliga Gudaha si Sare loogu qaado Bixinta Adeegga iyo Xoojinta Qandaraaska Bulshada.Waxay xooga saaraysaa muhiimada ay leedahay xoojinta ururinta dakhliga gudaha si loo kobciyo koboc joogto ah iyo mid dheer oo waxay soo jeedisaa jihooyinka wax kabeddelka.Talooyinka xeerka muhiimka ah waxaa ka mid ah xoojinta dadaallada soo ururinta dakhliga gudaha si loo kordhiyo saamiga dakhliga iyo-GDP sanadka 2030 iyada oo la ballaarinayo salka canshuuraha,casriyeynta ururinta canshuuraha iyo dakhliga kastamka,dhamaystirka qaab-dhismeedka federaalka maaliyadeed,iyo si waxtar leh isugu xidhka Caawinta Horumarinta Rasmiga ah(ODA).Intaa waxaa dheer,sare u qaadista adeega bulshada waxay door muhiim ah ka ciyaari doontaa xoojinta qandaraaska bulshada iyo taageeridda aragtida istiraatijiyadeed ee Soomaaliya ee koboca iyo xasilloonida.Kristina Svensson Maamulaha Wadanka,Bangiga Adduunka ee SoomaaliyaAcknowledgementsThe Ninth Edition of the Somalia Economic Update(SEU)was prepared under the overall guidance and supervision of Abha Prasad(Practice Manager,EAEM1),Manuel Vargas(Practisce Manager,EAEG1),William G.Battaile(Lead Economist,EAEDR),and Verena Maria Fritz(Lead Governance Specialist,EAEG1).The team benefited from valua-ble guidance from Kristina Svensson(Country Manager,AEMSO).Peer reviewers were Urbain Thierry Yogo(Senior Economist,EAWM1),Zubair Khurshid Bhatti(Lead Governance Specialist,EAEG2),Viet Anh Nguyen(Senior Public Sector Specialist,EGVPF)and Kevin Carey(Program Manager EFICT).The SEU was prepared by a World Bank team led by Abdoulaye Ouedraogo(Economist,EAEM1).The core team consisted of Stella Ilieva(Senior Economist,EAEM1),Alma Nurshaikhova(Senior Public Sector Specialist,EAEG1),and Leif Jensen(Senior Fiscal Expert).The team wishes to thank Alastair Peter Francis Haynes(Economist,EAEPV),Alejandro De la Fuente(Senior Economist,EAEPV),Sameer Goyal(Senior Financial Sector Specialist)and Vera Rosauer(Senior External Affairs Officer)for their valuable input.Violet Tsindori Amani,Lydie Ahodehou,Christine Khasiro Wesakania and Angela Wangari Mwangi provided administrative and logistical support during the preparation of the report.Peter Milne edited the report and Piotr Ruczynski contributed as Graphic Designer.The report benefited from fruitful comments and information provided by representatives of the Federal Government of Somalia.viiAbbreviations and Acronyms AfDB African Development BankAML/CFT Anti-Money Laundering/Countering the Financing of TerrorismAS Al-ShababATMIS African Union Transition Mission inSomaliaAUSSOM African Union Support and Stabilization Mission in SomaliaCBS Central Bank of SomaliaCET Common External TariffCIT Corporate Income TaxDRM Domestic Revenue MobilizationEAC East African CommunityEBM Electronic Billing MachineEIFRL Extractive Industries Fiscal Regime LawEMDE Emerging Markets and Developing EconomiesEU European Union FCV Fragile,Conflict and ViolenceFDI Foreign Direct InvestmentFGS Federal Government of SomaliaFMS Federal Member StatesGSS Galmudug State of SomaliaHIPC Heavily Indebted Poor CountryHSS Hirshabelle State of SomaliaITAS Integrated Tax Administration Automation SystemJSS Jubaland State of SomaliaLDR Loan-to-Deposit RatioMENA-FATF Middle East and North Africa Financial Assistance Task ForceNBFI Non-Bank Financial Sector InstitutionNGO Non-Governmental OrganizationNTP National Transformation PlanODA Official Development AssistanceOPEC Organization of Petroleum Exporting Countries PFM Public Financial ManagementPIT Personal Income Tax PPG Public and Publicly Guaranteed PSS Puntland State of SomaliaPCV Protracted Conflict and ViolenceSIBEC Somalia Integrated Business Establishment CensusSIPS Somali Instant Payment SystemSNBS Somalia National Bureau of StatisticsSOMCAS Somalia Customs Automated SystemSOS Somali ShillingSSA Sub-Saharan AfricaSWS South-West State of SomaliaTADAT Tax Administration Diagnostic Assessment ToolVAT Value-Added TaxixExecutive SummarySomalia is navigating a pivotal moment in its devel-opment journey,emerging from decades of conflict with renewed hope and strategic vision.The National Transformation Plan 2025 2029 and the Centennial Vi-sion 2060 articulate an ambitious reform program aimed at fostering inclusive economic growth and creating job opportunities.The Government is pursuing reforms to help ensure fiscal sustainability following the Heavily Indebted Poor Country(HIPC)Initiative completion in 2023,as well as structural and state-building reforms to address security concerns and spur growth in sectors with growth potential such as fisheries,telecommunications,and energy.The financial and private sectors are expect-ed to play a vital role in this transformation.However,the ability of the Government to address development issues faces substantial risks and uncertainties,includ-ing climate impacts,continued security threats,a chal-lenging federal structure,low domestic resource mobili-zation,and high dependence on Official Development Assistance(ODA).With the latter set to decline,Somalia will likely face new fiscal challenges in delivering on its planned development program,which underscores the urgency of raising more domestic resources.Somalias economy has shown resilience despite chal-lenges,with steady growth driven by livestock exports and agriculture.Economic growth was strong in 2024.Poverty levels have been estimated to have decreased gradually since 2022,aided by improved weather condi-tions that have also enhanced food security,though pov-erty remains a significant issue with millions still at risk of acute food insecurity in 2025.The agriculture sector,especially livestock,is vital for economic stability,with notable increases in exports.However,the economys heavy reliance on imports results in a substantial trade deficit,negatively impacting growth.The private sector has seen credit growth,boosting construction and real estate,while remittances continue to support households and drive private consumption a key economic driver.The economys de facto dollarization helps maintain price stability,especially during times of low and sta-ble global commodity prices.Inflation slowed to 5.5 per-cent in 2024,thanks to better weather and lower global commodity prices.As agriculture output increased,food inflation in Mogadishu contracted by 1.2 percent in 2024 compared with 0.7 percent growth in 2023.The drop in global commodity prices led to cheaper fuel and energy prices locally,although these remain higher than pre-2022 levels.Rising local telecommunication costs,transporta-tion costs,furnishings and household equipment prices continue to contribute to overall inflation.The exchange rate between the Somali shilling(SOS)and the US dol-lar stayed relatively steady,averaging SOS 28,118/US$1.00.Somalias financial sector is advancing with better reg-ulatory frameworks and a rise in mobile money usage.In 2022,8.8 percent of adults had bank accounts,but over 90 percent of households relied on mobile money services.The Central Bank of Somalia(CBS)introduced the Somali Instant Payment System(SIPS)in December 2024,speeding up transactions.Private sector credit grew by 23 percent compared with 2023,while macropruden-tial indicators such as the capital adequacy ratio,liquid-ity,and portfolio quality remained within international standards,with post-tax and zakat profits experiencing a significant recovery.Commercial bank assets increased in 2024 by 13 percent to US$2 billion,representing 16.7 percent of GDP.In 2024,Somalias international trade experienced no-table growth,with merchandise exports rebounding,mainly due to the thriving livestock sector and meth-odological changes in estimating exports.Livestock ex-ports surged in response to high demand from Middle Eastern markets,while sectors such as crops,vegetable oil,and fisheries have also expanded.However,Soma-lias overall import expenses continued to rise,driven by food,medical products and automobiles.As a result,the 12|Somalia Economic Updatetrade deficit grew slightly as imports exceeded exports.Nevertheless,the current account deficit narrowed to 8.9 percent of GDP in 2024(from 9.3 percent in 2023)on the back of higher remittances and ODA.Although remittanc-es improved by 25 percent owing to favorable global fi-nancial conditions and external aid offered some respite,Somalia remains vulnerable due to its dependence on imports and the volatile global aid landscape.The Federal Government of Somalia(FGS)achieved a small fiscal surplus due to higher external grants and improved tax revenue collection.While domestic reve-nue remained at 3.0 percent of GDP one of the lowest levels globally external grants boosted total revenue to 7.6 percent of GDP.Tax revenue rose by 0.2 percentage points(ppt)of GDP,supported by automation of customs revenue,sales taxes,and rental income and road taxes.Public spending increased to 7.4 percent of GDP because of recurring costs such as wages and security,with social services mainly funded by external grants.Spending was primarily on wages,especially in the security sector,with significant increases in social benefits and intergovern-mental transfers.Sector spending focused on security and administrative services,but donor-funded projects also increased expenses in social and economic services.Fiscal performance improved across all Federal Mem-ber States(FMS)in 2024 due to increased domestic revenue and subnational grants.Puntland State of So-malia(PSS)saw a 4.2 percent revenue increase,while Ju-baland State of Somalia(JSS)had a 1.7 percent rise.Trade taxes and taxes on goods and services drove revenue but underperformed in JSS.Other states saw revenue growth from these taxes as well.External grants supported fis-cal operations despite a 25-percent decline in JSS.Howev-er,limited fiscal space constrained service delivery,with most spending on wages and procurement,leaving little room for public investment.Capital spending was min-imal,except in PSS where it accounted for 15 percent of total spending in 2024.Debt relief has substantially reduced Somalias exter-nal debt,including a major cancellation of 99 percent of debt owed to Paris Club members in March 2024.By the end of 2024,Somalias public debt was US$778 million(6.1 percent of GDP),mostly external.Despite improved debt sustainability,Somalia still faces moder-ate risk of debt distress due to insecurity,weather shocks,and reliance on external financing.Continued reforms are necessary to maintain fiscal discipline,boost do-mestic revenue,strengthen macroeconomic institutions,constrain non-concessional borrowing,and improve debt management.Medium-Term Outlook and RisksDeclining foreign aid in 2025 and high uncertainty about the magnitude of foreign aid in the future have dampened the growth outlook.Real GDP growth is ex-pected to stay between 3 and 4 percent over the medium term.Aid uncertainty,which has substantially increased in recent months,is the key contributor to this expected softening given Somalias high dependence on external assistance.On the positive side,reforms implemented in the context of HIPC Completion Point,as well as post-HIPC reforms,are paying off and support sustained growth,al-beit modestly due to continuing fragility.The recovery in agricultural production and exports is expected to con-tinue through 2025,albeit at a slower pace.The agricul-ture sector,however,is likely to remain vulnerable to cli-mate-related shocks.Such shocks and the downsizing of humanitarian aid are projected to increase the num-ber of people facing acute food insecurity from 18 per-cent of population in Q2-2024 to 24 percent in Q2-2025.External imbalances are expected to widen as exter-nal grants gradually decline.The current account defi-cit is projected to increase from 8.9 percent of GDP in 2024 to 10 percent of GDP in 2027/28,largely due to low-er official grants.Structural reforms and deeper region-al integration are expected to boost exports of goods in services,narrowing the trade gap.Imports are expected to remain strong,supporting consumption and invest-ment growth.Remittances and,to a lesser extent,exter-nal grants will continue to finance the current account deficit.Inflation is projected to be moderate in 2025 and stabilize between 3 and 4 percent over the medium term.De facto dollarization and effective implementation of the planned introduction of a currency board arrange-ment should continue to provide relative price stability,given dependence on imports.Somalias membership in the East African Community(EAC)offers significant opportunities but also presents several challenges.While joining the EAC could enhance regional integration,trade,and investment,opening new markets for Somali goods and services,Somalia faces Executive Summary|3critical hurdles that need to be addressed(World Bank,2025a).1 The countrys limited economic diversification makes it vulnerable to external shocks,as it heavily re-lies on agriculture,particularly livestock.In addition,Somalia may encounter competitive pressures from more established industries within the EAC,which could chal-lenge local businesses.The transition to the Common External Tariff(CET)poses a risk of revenue shortfall,ne-cessitating alternative revenue strategies and improved domestic revenue mobilization.Furthermore,Somalia must tackle security threats from Al-Shabab and align its policies with EAC members,requiring political will,an effective fiscal federalism framework,and enhanced administrative capacity amid internal pressures such as elections,FGS-FMS political contestation,and declining aid.Ensuring stability and investor confidence will be crucial for leveraging EAC benefits and achieving sus-tainable growth.Key risks to the outlook include climate vulnerabilities,uncertain aid flows,political and security challenges,and unpredictable global trade policy.Climate shocks are likely to intensify in the future with variable temper-atures and precipitation,negatively affecting growth.2 Reduced rainfall in 2025 could worsen food insecurity,while the withdrawal of the African Union Transition Mission inSomalia(ATMIS)forces in December 2024 has heightened insecurity risks.Increased volatility of commodity prices and higher inflationary expectations in major economies going forward could adversely af-fect Somalias dollarized economy,increasing import costs,particularly fuel and food,affecting real wages and poverty levels.Somalias trade risks are compounded by global demand fluctuations and conflicts,with its heavy reliance on external supply chains making it vulnerable to market disruptions that affect essential goods such as food and fuel.Recent shifts in aid policies,including fur-ther aid cuts,pose significant challenges to growth and poverty reduction efforts.These cuts could undermine development and humanitarian initiatives,increase in-security,and affect the financing of the current account deficit.Furthermore,uncertainties in global trade poli-cies threaten to disrupt Somalias emerging industries and export sectors,deterring foreign investment and hinder-ing economic diversification.1 These findings are drawn from a forthcoming World Bank report titled“Economic Impacts of Somalias Accession to the East African Community.”2 The World Bank is currently preparing a Country Climate and Development Report(CCDR)that takes an in-depth look at climate vulnerabilities and actions to boost adaptation and resilience.Sustained reform efforts are needed to promote eco-nomic resilience and jobs creation,with a particular fo-cus in the near term on more sustainable public financ-es and resilient private sector development.In line with Somalias Centennial Vision 2060,sectors such as digi-tal technology,agribusiness,fisheries,energy,and manu-facturing are expected to experience significant econom-ic growth,thereby creating numerous job opportunities,and contributing to economic diversification and resil-ience.Reforms to promote sustainable public finances will increase the fiscal space needed for productivity en-hancing investments in human capital development and infrastructure to foster economic growth,jobs,and pov-erty reduction.Key fiscal measures include:(i)boosting domestic revenues,including via a stronger and well-im-plemented legal framework;(ii)enhancing efficiency and transparency of public expenditures;and(iii)building debt management capacity.Enabling resilient private sec-tor development can be supported by reforms in key sec-tors of the economy.Key sectoral reforms include:(i)im-proving regulation and supervision of non-bank financial institutions;(ii)putting in place seafood safety standards to support higher value-added fisheries exports;(iii)in-centivizing investments in renewable energy generation;and(iv)implementing reforms to expand access to in-ternational broadband capacity to enhance transparen-cy,predictability,and investor confidence.Somalias journey toward stability and growth hinges significantly on its domestic revenue mobilization(DRM)capacity,which in turn is the function of the sustained private sector-led economic growth,eco-nomic diversification,and job creation.By strength-ening its ability to generate its own resources,Somalia can build stronger human capital,ensure security and justice,and develop a robust state infrastructure,paving the way to sustained economic growth and reduced fra-gility.Efforts to enhance DRM are imperative for decreas-ing dependency on external aid and fostering fiscal in-dependence,forming a crucial dimension of the broader reform agenda as emphasized in Part II of this report.As Somalia continues to fortify its fiscal capacity,it sets the foundation for a more resilient and self-sufficient state,capable of navigating the complexities of its socio-eco-nomic landscape.4|Somalia Economic UpdateDomestic Revenue Mobilization for Enhanced Service Delivery and Social ContractSomalia has made considerable progress in laying the foundations of state building,making incremen-tal headway on fiscal and economic reforms,and the development of economic governance institutions.Nonetheless,strengthening state legitimacy and deliv-ering results to citizens will require much greater effort and investment.Somalias health indicators continue to rank among the lowest globally,with an average life ex-pectancy of just 56 years.Only 32 percent of births are at-tended by skilled personnel,and only 21 percent occur in health-care facilities nationwide(WHO,2023).Access to education has remained low over the past two decades,with less than 25 percent of school-age children enrolled in primary or secondary schools,albeit with significant variations across Somalia and high drop-out rates.Fif-ty-four percent of the population live below the nation-al poverty line(World Bank,2024a).Boosting DRM is imperative for the countrys contin-ued efforts in state-building and service delivery.De-spite tripling its domestic revenue from US$113 million in 2016 to US$369 million in 2024,the FGSs domestic revenue-to-GDP ratio of 3 percent and tax-to-GDP ratio of 2.2 percent in 2024 remain among the lowest in the world.If the FGS and FMS revenue are combined,the rev-enue-to-GDP ratio represents 4.2 percent.3 It is commonly assumed that a country needs to generate at least 15 per-cent of the tax-to-GDP ratio to provide sustainable levels of public services to its population.Recent DRM efforts show promising signs,with pro-jections indicating a potential increase in the domes-tic revenue-to-GDP ratio from 3.0 percent in 2024 to 4.5 percent by 2030 or 6.1 percent if FMS revenue is ac-counted for.With these revenue trends,Somalia will only afford to provide publicly financed primary and secondary education,and basic health services to 25 per-cent of its population by 2030.Reaching 50 percent cov-erage would require intensified efforts to increase domes-tic revenue to at least 9 percent of GDP,while reaching basic service provision for 100 percent of its population will require domestic revenue of at least 15 percent of GDP.3 The revenue data exclude Somaliland.4 FGS Appropriation Act for the 2025 Budget and World Bank staff estimates.There is additional urgency of improving DRM from aid disruptions as mentioned above.Somalia relies heavily on ODA,which reached 33 percent of GDP in 2022 2024.4 ODA is largely off-budget and flows are unpredictable,geared toward humanitarian response and subject to ge-opolitical turbulence.Therefore,boosting domestic reve-nue and mobilizing private capital is imperative for sus-tained development.The largest gains in revenue mobilization are expected to come from expanding the tax base and deepening cus-toms reforms.Expansion of the tax base can be achieved through:(i)implementation of the Income Tax Law across the Federation;(ii)introduction of excise taxes;(iii)im-plementation of the sales tax in FMS,including enforce-ment of its collection at import;(iv)increasing transparen-cy of tax expenditures and harmonizing their application across the Federation;and(v)implementation of the legal framework for the taxation of natural resources.Customs reforms should target:(i)de-facto harmonization of tariffs across ports in the FGS and FMS;(ii)implementation of the ad valorem valuation of goods and services;(iii)aligning customs legislation with the ECA protocols and standards while negotiating a gradual Common External Tariff(CET)implementation;and(iv)expanding digitalization efforts.Improvements in tax administration can also sup-port revenue mobilization.These improvements can be achieved through:(i)improving consistency and equity in applying tax laws;(ii)simplifying taxpayer registra-tion,filing,and payment procedures,including through ongoing and planned digitalization efforts;(iii)enhanc-ing taxpayer services,the administrative capacity and in-tegrity of revenue authorities;(iv)focusing on improving the quality,selection/targeting,and perceived fairness of tax audits;and(v)more effective taxpayer communica-tion and education.Any tax policy and administration reforms should consider potential adverse socio-eco-nomic implications,as well as political economic reali-ties.Building trust and improving tax compliance is vi-tal for long-term revenue growth.Strengthening the fiscal federalism framework is an essential prerequisite for enhanced revenue mobili-zation,as its absence creates distortions in economic Executive Summary|5activity and places an additional burden on taxpay-ers,eroding the social contract.Predictable and trans-parent revenue-sharing arrangements are core in the ef-forts to ensure the effective use of fiscal resources across any federation.Tax competition among different levels of government and double taxation creates an excessive burden on taxpayers.This stresses the need for redistri-bution mechanisms of the customs duties across the Fed-eration(revenue capacity equalization transfers),as well as the need for harmonization of income and consump-tion taxes,taking into account the uneven distributions of tax sources across the states and between the FMS and FGS.Adoption of legally binding rules on the division of tax policy,administration,and revenue-sharing powers across the Federation,along with the decision to estab-lish a semi-autonomous Revenue Authority,are critical for finalizing fiscal federalism arrangements.In addition to domestic revenue mobilization,strong ODA coordination and increased private capital mobi-lization will be required.Incorporating existing ODA into the national budget will be crucial for enhanced coordination,evidence-based planning,and efficiency,while also bolstering the Governments capacity to man-age these resources effectively.At a minimum,ODA must be visibly reflected in the national budget and aligned with the Somalia National Transformation Plan(NTP)5 NTP estimates the total investment requirement of US$26.2 billion over the five-year period(https:/www.ntp.gov.so/)for 2025 2029 costing.5 Different scenarios of declining external assistance need to be thought through,and al-ternative financing strategies explored.A coherent strat-egy for mobilizing private capital in vital service delivery sectors needs to be devised and implemented,accompa-nied by explicit commitments to finance existing gaps in service delivery.As Somalia is still navigating its state-building stage,enhancing the social contract through better public service delivery is a foundation for taxpayers readi-ness to pay taxes.When citizens pay taxes,they expect the Government to use public funds to provide public services.Given the Governments limited ability to pro-vide the extended package of public services,it is clear that service delivery in Somalia must remain a shared task among various levels of government and the private sec-tor.To deliver on the states role,the FGS needs to clearly define functional assignments at the sectoral level,that is,which level of government delivers what services.It is crucial to understand the cost of each functional assign-ment and match it with the financing resources availa-ble at each level,either through federal transfers or local revenue mobilization efforts.It is also critical to under-stand the role of non-state actors(development partners,private sector,local communities)and their financing ca-pacities,and coordinate at each level.Soo koobida Hawl fulintaSoomaaliya waxa ay maraysaa wakhti muhiim ah oo ku jirta safarkeeda horumarka,iyada oo ka soo baxaysa tobanaan sano oo colaado ah oo leh rajo hor leh iyo aragti istiraatijiyadeed.Qorshaha Isbadalka Qaran ee 2025 2029 iyo Hiigsiga Qarniga ee 2060 ayaa qeexaya barnaamij hammi leh oo wax ka beddel looga dan leeyahay in lagu kobciyo koboc dhaqaale oo loo dhan yahay iyo abuurista fursado shaqo.Dawladdu waxay waddaa wax ka beddelka lagu hubinayo joogtaynta maaliyadda ka dib dhammaystirka Hindisaha Dhismaha iyo dib-u-dhiska dawlad-goboleedka ee 2023,si loo horumariyo qaybaha leh awoodda koritaanka sida kalluumeysiga,isgaarsiinta,iyo tamarta.Qaybaha maaliyada iyo kuwa gaarka loo leeyahay ayaa la filayaa inay door muhiim ah ka ciyaaraan isbeddelkan.Si kastaba ha ahaatee,kartida ay Dawladdu u leedahay in ay wax ka qabato arrimaha horumarinta waxa ay soo food saartay khataro badan iyo hubanti laaan,oo ay ku jiraan saamaynta cimilada,khataraha amniga ee joogtada ah,qaabdhismeedka federaalka oo adag,soo ururinta kheyraadka gudaha oo hooseeya,iyo ku tiirsanaanta badan ee Kaalmada Horumarinta Rasmiga ah(ODA).Iyadoo tan dambe lagu wado inay hoos u dhacdo,Soomaaliya waxay u badan tahay inay la kulmi doonto caqabado maaliyadeed oo cusub si ay u gudato barnaamijkeeda horumarineed ee la qorsheeyay,taasoo hoosta ka xariiqaysa sida degdega ah ee kor loogu qaadayo ilo badan oo gudaha ah.Dhaqaalaha Soomaaliya waxa uu muujiyay adkeysi ka sakow caqabadaha,iyadoo kobac joogto ah uu ka dhashay dhoofka xoolaha iyo beeraha.Kobaca dhaqaaluhu wuxuu ahaa mid xoogan 2024.Heerarka faqriga ayaa lagu qiyaasay inay si tartiib-tartiib ah hoos ugu dhaceen tan iyo 2022,iyadoo ay kaalmeysay xaaladaha cimilada oo soo roonaaday oo sidoo kale kor u qaaday sugnaanta cuntada,in kasta oo faqrigu uu weli yahay arrin muhiim ah iyadoo malaayiin ay weli halis ugu jiraan cunto yari aad u daran 2025ka.Qaybta beeraha,gaar ahaan xoolaha,ayaa muhiim u ah xasilloonida dhaqaalaha,iyadoo ay xusid mudan tahay korodhka wax dhoofinta.Si kastaba ha ahaatee,dhaqaaluha ku tiirsanaantiisa culus ee soo dejinta waxay keentaa khasaare ganacsi oo la taaban karo,oo si xun u saameeya koboca.Qaybta ganacsiyada gaarka loo leeyahay waxay aragtay kobaca amaahda,xoojinta dhismaha iyo hantida ma-guurtada ah,halka xawaaladaha ay sii wadaan inay taageeraan qoysaska oo ay sare u sii qaado isticmaalka gaarka ah dhaqaahiyaha dhaqaale oo muhiim ah.Dhaqaalaha isticmaalkiisa doolarka ku salaysan waxa uu caawiyaa ilaalinta xasilloonida qiimaha,gaar ahaan wakhtiyada qiimaha badeecadaha adduunka hooseeya oo xasilloon.Sicir bararka ayaa hoos u dhacay 5.5 boqolkiiba 2024,taas oo ay ugu wacan tahay cimilada wanaagsan iyo qiimaha badeecadaha adduunka oo hooseeya.Markii wax soo saarka beeraha uu kordhay,sicir-bararka cuntada ee Muqdisho wuxuu hoos u dhacay 1.2 boqolkiiba 2024 marka la barbar dhigo 0.7 boqolkiiba kobocii 2023.Hoos u dhaca ku yimid qiimaha badeecadaha caalamiga ah ayaa keenay in shidaal iyo tamar ka jaban gudaha dalka,in kasta oo kuwani ay weli ka sarreeyaan heerarkii ka horreeyay 2022.Kor u kaca qiimaha isgaarsiinta maxalliga ah,qiimaha gaadiidka,alaabta guriga iyo qiimaha qalabka qoyska ayaa sii wada inay ka qayb qaataan sicir bararka guud ahaaneed.Qiimaha sarifka shilinka Soomaaliga iyo dollarka Maraykanka ayaa ahaa mid quman oo aan dhaqaaqin,celcelis ahaan SOS 28,118/US$1.00.Qaybta maaliyadda ee Soomaaliya waxay ku hormaraysaa qaab dhismeed habaysan oo wanaagsan iyo kor u kaca isticmaalka lacagta mobilada.Sannadkii 2022,8.8 boqolkiiba dadka waaweyn waxay lahaayeen akoono bangi,laakiin in ka badan 90 boqolkiiba qoysasku waxay ku tiirsanaayeen adeegyada lacagta mobilada.Bangiga Dhexe ee Soomaaliya(CBS)ayaa bishii December ee sanadkii 2024 kii hirgeliyay 78|Somalia Economic Updatenidaamka lacag bixinta degdegga ah ee Soomaaliya(SIPS),taasoo dardargelisay wax kala iibsiga.Qaybaha kaladuwan ee koboca dayntaw 23 boqolkiiba marka la barbar dhigo 2023,halka tilmaamayaasha qiyaasiada kala duwan sida saamiga ku filnaanta raasumaalka,u beddelka hantida lacag,iyo tayada faylalka ay ku hadheen heerarka caalamiga ah,iyada oo faaiidada cashuurta ka dib iyo sakada ay la kulmeen soo kabasho la taaban karo.Hantida bangiyada ganacsigu way korodhay 2024 13 boqolkiiba ilaa US$2 bilyan,taasoo ka dhigan 16.7 boqolkiiba GDP.Sannadkii 2024-kii,ganacsiga caalamiga ah ee Soomaaliya waxa uu la kulmay kobac la taaban karo,iyadoo dhoofinta badeecadaha ay sare u kacday,taas oo ay ugu wacan tahay muhiim ahaan qaybta xoolaha oo kobcaysa iyo qaabka isbeddelka ee qiyaasida dhoofinta.Dhoofinta xoolaha ayaa sare u kacday iyadoo jawaab u ah baahida sare ee suuqyada Bariga Dhexe,iyadoo qaybaha sida dalagyada,saliidda khudradda,iyo kalluumeysiga ay sidoo kale ballaadheen.Si kastaba ha ahaatee,guud ahaan kharashaadka soo dejinta ee Soomaaliya ayaa sare u sii kacayay,oo ay ku kacayaan cunto,badeecooyin caafimaad iyo baabuur.Natiijo ahaan,hoos u dhaca ganacsigu wuu yara korodhay maadaama wax soo dejinta ay kor martay maray dhoofinta.Si kastaba ha ahaatee,khasaaraha kootada hadda ayaa lagu soo koobay 8.9 boqolkiiba GDP 2024(laga bilaabo 9.3 boqolkiiba 2023)xaga dambe ee xawaaladaha sare iyo ODA.Inkasta oo xawaaladaha ay sare u kaceen 25 boqolkiiba taas oo ay ugu wacan tahay xaaladaha dhaqaale ee wanaagsan ee caalamiga ah iyo gargaarka dibadda oo siiyay waxoogaa nasasho ah,Soomaaliya ayaa weli ah mid nugul oo ay ugu wacan tahay ku tiirsanaanta badeecadaha la soo dejiyo iyo muuqaalka gargaarka caalamiga ah ee isbedbedela.Dowladda Federaalka Soomaaliya(DFS)ayaa ku guulatasay lacag yar oo dheeraaad ah taasoo ay ugu wacan tahay deeqaha dibadda oo sare u kaca iyo horumarinta ururinta dakhliga canshuuraha.Halka dakhliga gudaha uu ahaa 3.0 boqolkiiba GDP-mid ka mid ah heerarka ugu hooseeya caalamka-deeqaha dibadda ayaa kordhiyay wadarta dakhliga ilaa 7.6 boqolkiiba GDP.Dakhliga cashuuruhu wuxuu kor u kacay 0.2 dhibcood boqolkiiba(ppt)GDP,oo ay taageerto nidaamka kombiyuutarka ee dakhliga kastamada,cashuurta iibka,dakhliga kiraynta iyo cashuuraha wadooyinka.Kharash garaynta dadwaynaha ayaa kordhay ilaa 7.4 boqolkiiba GDP sababtoo ah kharashyada soo noqnoqda sida mushaharka iyo amniga,iyada oo adeegyada bulshada inta badan ay maalgeliyaan deeqo dibadda ah.Kharashaadka ayaa ugu horreyntii ahaa mushaharka,gaar ahaan qaybta amniga,iyada oo ay si wayn u korodhay faaiidooyinka bulshada iyo xawilaadaha dawlada u dhexeeya.Kharashaadka qaybaha ayaa xooga saaray amniga iyo adeegyada maamulka,laakiin mashaariicda ay deeq-bixiyayaashu maalgeliyaan ayaa sidoo kale kordhiyey kharashaadka adeegyada bulshada iyo dhaqaalaha.Waxqabadka maaliyadeed ayaa horumaray dhammaan Dawlad goboleedyada xubinta ka ah Dawladda Federaalka(FMS)sanadka 2024 iyaddoo ay sababtay dakhliga gudaha oo kordhay iyo deeqaha dawlad goboleedyada.Dakhliga Maamul Gobolkeedka Puntland ee Soomaalia(PSS)ayaa gaadhay 4.2 boqolkiiba korodhka dakhliga,marka Dowlad Goboleedka Jubaland ee Soomaalya(JSS)ay sare u kacday 1.7 boqolkiiba.Canshuuraha ganacsiga iyo canshuuraha badeecadaha iyo adeegyada ayaa keenay dakhliga laakiin wax qabadkoodu waa uu ku hooseeyay JSS.Gobolada kale waxay arkeen kobaca dakhliga cashuurahan siiba.Deeqaha dibadda waxa ay taageereen hawl galada maaliyadda in kasta oo 25-boqolkiiba hoos u dhac ku yimid JSS.Si kastaba ha ahaatee,booska xaddidan ee maaliyadeed ayaa xanibay bixinta adeega,iyada oo inta badan lagu kharash gareeyo mushaharka iyo soo iibsiga,taasoo ka tagaysa meel yar oo maalgashi dadweyne.Kharashka raasumaalka ayaa ahaa mid aad u yar,marka laga reebo PSS halkaas oo ay gaadhay 15 boqolkiiba wadarta kharash garaynta 2024.Cafinta deymaha ayaa si weyn hoos ugu dhigay deymaha dibadda lagaga leeyahay Soomaaliya,oo ay ku jirto in 99 boqolkiiba la tirtiray deymihii lagu lahaa xubnaha Paris Club bishii Maarso 2024-kii.Dhammaadkii 2024-kii,deynta guud ee Soomaaliya waxay ahayd US$778 milyan(6.1 boqolkiiba GDP),inta badan dibadda.a sakow iyaddoo daymahu si wayn u soo hagaagtay,haddana Soomaaliya waxa ay wajaheysaa khatar dhexdhexaad ah oo dhibaato deymo ah oo ay ugu wacan tahay amni-darro,jahawareerka cimilada,iyo ku tiirsanaanta maalgelinta dibadda.Isbeddelada joogtada ahi waxay lagama maarmaan u yihiin si loo ilaaliyo anshaxa maaliyadeed,lagu kordhiyay dakhliga gudaha,xoojinta hayadaha dhaqaalaha guud,la xakameeyo amaahda aan faaiido doonka ahayn,iyo horumarinta maamulka deynta.Soo koobida Hawl fulinta|9Muuqaalka Muddada Dhex-dhexaadka ah iyo KhatarahaHoos u dhaca kaalmada shisheeye ee 2025 iyo hubanti laaanta sare ee ku saabsan baaxadda kaalmada shisheeye ee mustaqbalka ayaa yaraysay aragtida koritaanka.Kobaca GDP-ga dhabta ah waxa la filayaa in uu sii ahaado inta u dhaxaysa 3 iyo 4 boqolkiiba muddada dhexe.Hubanti laaanta gargaarka,oo si aad ah u korodhay bilihii la soo dhaafay,ayaa ah ta ugu muhiimsan ee wax ku biiriya debcintan la filayo marka loo eego ku tiirsanaanta sare ee Soomaaliya ee kaalmada dibadda.Dhinaca wanaagsan,dib-u-habaynta lagu hirgaliyay macnaha guud ee HIPC Completion Point,iyo sidoo kale wax ka beddelka HIPC ka dib,ayaa bixinaysa oo taageeraysa kobaca joogtada ah,in kasta oo si dhexdhexaad ah ay ugu wacan tahay jilicsanaanta sii socota.Soo kabashada wax soo saarka beeraha iyo dhoofinta waxaa la filayaa inay sii socoto ilaa 2025,in kasta oo ay ku socoto xawli gaabis ah.Qaybta beeraha,si kastaba ha ahaatee,waxay u badan tahay inay sii ahaato mid u nugul jahawareerka cimilada.Naxdinta noocan oo kale ah iyo hoos u dhaca gargaarka biniaadantinimo ayaa la saadaalinayaa inay korodho tirada dadka ay soo food saartay cunto yari baan laga bilaabo 18 boqolkiiba dadweynaha Q2-2024 ilaa 24 boqolkiiba Q2-2025.Isku dheelitir laaanta dibadda ayaa la filayaa inay sii balaadhato maadaama deeqaha dibadda ay si tartiib-tartiib ah hoos ugu dhacaan.Khasaaraha xisaabaadka hadda jira ayaa la saadaalinayaa inuu ka kordho 8.9 boqolkiiba GDP 2024 ilaa 10 boqolkiiba GDP 2027/28,taas oo ay ugu wacan tahay deeqaha rasmiga ah oo hooseeya.Wax kabeddelka qaab-dhismeedka iyo is-dhexgalka qoto-dheer ee gobolka ayaa la filayaa inay xoojiyaan dhoofinta badeecadaha ee adeegyada,yaraynta farqiga ganacsiga.Soo dejinta ayaa la filayaa inay sii ahaato mid xoogan,iyaddoo taageeraysa isticmaalka iyo kobaca maalgashiga.Xawaaladaha iyo,ilaa xad ka yar,deeqaha dibadda ayaa sii wadi doona inay maalgeliyaan farqiga badan ee soo dejinta alaabta.Sicir-bararka ayaa la saadaalinayaa inuu dhexdhexaad ahaado sannadka 2025 oo uu dejiyo inta u dhaxaysa 3 iyo 4 boqolkiiba xiliga dhexe.Isticmaalka doolarka iyo hirgelinta waxtarka leh ee hordhaca ah ee la 6 Natiijooyinkan ayaa laga soo qaatay warbixin dhawaan uu soo saari doono Bangiga Adduunka oo cinwaan looga dhigay“Saameynta Dhaqaale ee ku biirista Soomaaliya ee Bulshada Bariga Afrika”.7 Baanka Adduunka waxa uu hadda diyaarinayaa Warbixinta Cimilada iyo Horumarka Dalka(CCDR)taas oo si qoto dheer u eegaysa nuglaanshaha cimilada iyo ficillada kor loogu qaadayo la qabsiga iyo adkaysiga.qorsheeyay habaynta guddiga lacagta waa in ay sii wadaan bixinta degaanshaha qiimaha la xidhiidha,iyada oo ku xidhan soo dejinta alaabta.Xubinnimada Soomaaliya ee Beesha Bariga Afrika(EAC)ee suurtagalka ah in ay ka mid noqoto waxa ay siinaysaa fursado wayn laakiin waxa ay sidoo kale soo bandhigaysaa caqabado dhowr ah.Iyadoo ku biirista EAC ay kor u qaadi karto isdhexgalka gobolka,ganacsiga,iyo maalgashiga,furitaanka suuqyo cusub oo loogu talagalay badeecooyinka iyo adeegyada Soomaaliya,Soomaaliya waxay la kulmaysaa caqabado halis ah oo u baahan in wax laga qabto(Bangiga Adduunka,2025a).6 Kala duwanaanshaha dhaqaale ee dalka oo kooban ayaa ka dhigaysa mid u nugul jahawareerka dibadda,maadaama uu si weyn ugu tiirsan yahay beeraha,gaar ahaan xoolaha nool.Intaa waxaa dheer,Soomaaliya waxaa laga yaabaa inay la kulanto cadaadis tartan ah oo uga imaanaya warshado hor leh oo ku yaala gudaha EAC,kuwaas oo caqabad ku noqon kara ganacsiyada maxalliga ah.U wareegida Tariifada Guud ee Dibadda(CET)waxay keenaysaa khatar dakhli yaraan,taas oo lama huraan u ah xeelada dakhli oo kale iyo kor u qaadista ururinta dakhliga gudaha.Intaa waxaa dheer,Soomaaliya waa in ay wax ka qabataa khataraha amniga ee Al-Shabaab oo ay siyaasaddeeda la jaanqaaddo xubnaha EAC,iyaddoo u baahan doonid siyaasaxeed,qaab-dhismeed maaliyadeed oo maaliyadeed oo wax ku ool ah,iyo kor u qaadista awoodda maamul iyada oo ay jiraan cadaadisyo gudaha ah sida doorashooyinka,loolanka siyaasadeed ee DFS-FMS,iyo hoos u dhaca gargaarka.Xaqiijinta degenaanshaha iyo kalsoonida maalgeliyayaasha ayaa muhiim u ah ka faaiidaysiga faaiidooyinka EAC iyo gaaritaanka korriin waara.Khataraha ugu muhiimsan ee aragtida waxaa ka mid ah u nuglaanshaha cimilada,qulqulka gargaarka aan la hubin,caqabadaha,siyaasadeed iyo amniga,iyo siyaasadda ganacsiga caalamiga ah ee aan la saadaalin karin.Dhibaatooyinka cimiladu waxay u badan tahay inay mustaqbalka ku sii xoogaystaan heerkul kala duwan iyo roobab,oo si xun u saameeya koboca.7 Roobabkii yaraa ee 2025 ayaa ka sii dari kara cunto yarida,halka ka bixitaanka Ciidamada Midowga Afrika ee Ku Meel Gaarka ah ee Soomaaliya(ATMIS)gudaha Diisambar 10|Somalia Economic Update2024 ay sare u qaaday khataraha amni darro.Kordhinta qiimaha badeecadaha iyo rajada sicir-bararka ee sare u kaca ee laga filayo dhaqaalaha waaweyn ee hore u socda ayaa si xun u saamayn kara dhaqaalaha doolar isticmaalka ee Soomaaliya,iyagoo ordhinaya kharashka soo dejinta,gaar ahaan shidaalka iyo cuntada,taas oo saamaynaysa mushaharka dhabta ah iyo heerarka saboolnimada.Khatarta ganacsi ee Soomaaliya waxaa u sii dheer isbedbeddelka dalabaadka caalamiga ah iyo iska horimaadyada,iyada oo si weyn ugu tiirsan silsiladaha sahayda dibadda taasoo ka dhigaysa mid u nugul khalkhal xagga suuqa ah oo saameeya badeecadaha muhiimka ah sida cuntada iyo shidaalka.Isbeddellada u dambeeyay ee xeerarka gargaarka,oo ay ku jiraan dhimista gargaarka dheeraadka ah,ayaa caqabado waaweyn ku ah kobaca iyo dadaallada dhimista faqriga.Goyntani waxay wiiqi kartaa dadaallada horumarineed iyo kuwa biniaadantinimo,kordhinta amni-darrada,waxayna saameyn kartaa maalgelinta faraqa kala dhinaanshaha waxa la dhoofsho iyo waxa la soo dejiyo ee hadda.Intaa waxaa dheer,hubanti laaanta xeerarka ganacsiga caalamiga ah waxay halis gelineysaa in ay carqaladeeyaan warshadaha soo koraya ee Soomaaliya iyo qaybaha wax dhoofinta,taas oo ka hortagaysa maal-gashi shisheeye iyo caqabad ku ah kala duwanaanshaha dhaqaalaha.Dadaal dib-u-habeyn joogto ah ayaa loo baahan yahay si kor loogu qaado adkeysiga dhaqaalaha iyo shaqo abuurka,iyadoo si gaar ah xooga loo saaray mustaqbalka dhow dhaqaalaha dad wayaha oo waara iyo horumarinta ganacsiga gaarka loo leeyahay oo adkeysi leh.Iyadoo la raacayo Hiigsiga Qarniga ee Soomaaliya 2060,qaybaha sida tignoolajiyada dhijitaalka ah,ganacsiga beeraha,kalluumeysiga,tamarta,iyo warshadaynta ayaa la filayaa in ay helaan kobac dhaqaale oo la taaban karo,taas oo abuureysa fursado shaqo oo badan,oo wax ku biirinaysa kala-duwanaanshaha dhaqaale iyo adkeysiga.Dib-u-habaynta lagu horumarinayo maaliyadda guud ee waarta ayaa kordhin doonta booska maaliyadeed ee looga baahan yahay wax-soo-saarka kor u qaadista maal gashiga horumarinta caasimadda iyo kaabayaasha si loo kobciyo kobaca dhaqaalaha,shaqooyinka,iyo yaraynta faqriga.Tallaabooyinka maaliyadeed ee muhiimka ah waxaa ka mid ah:(i)kobcinta dakhliga gudaha,oo ay ku jirto qaab-dhismeed sharci oo xooggan oo si wanaagsan loo hirgeliyay;(ii)sare u qaadka waxtarka iyo hufnaanta kharashyada dad waynaha;iyo(iii)dhisidda awoodda maaraynta deynta.Awood-siinta horumarinta qaybaha gaarka loo leeyahay ee adkaysiga leh waxa lagu taageeri karaa wax ka beddelka qaybaha muhiimka ah ee dhaqaalaha.Wax kabeddelka qaybaha muhiimka ah waxaa ka mid ah:(i)hagaajinta nidaamka iyo kormeerka hayadaha maaliyadeed ee aan bangiyada ahayn;(ii)Dejinta heerarka badbaadada cunnada badda si loo taageero dhoofinta kalluunka ee qiimaha sare leh;(iii)Dhiirigelinta maalgashiga tamarta la cusboonaysiin karo;iyo(iv)hirgelinta wax ka beddelka lagu ballaarinayo helitaanka awoodda ballaaran ee caalamiga ah si kor loogu qaado hufnaanta,saadaalinta,iyo kalsoonida maalgashadayaasha.Safarka Soomaaliya ee dhanka xasilloonida iyo kobaca ayaa si weyn ugu xiran awoodda ururinta dakhliga gudaha(DRM),taas oo iyaduna ah shaqada joogtada ah ee kobaca dhaqaalaha ee ay hormuudka ka tahay ganacsiga gaarka loo leeyahay,kala duwanaanshaha dhaqaalaha,iyo shaqo abuurka.Iyadoo xoojinaysa awoodda ay u leedahay in ay soo saarto kheyraadkeeda,Soomaaliya waxay dhisi kartaa raasamaal xooggan oo biniaadan ah,xaqiijinta amniga iyo cadaaladda,iyo horumarinta kaabayaasha dowliga ah ee adag,taasoo u gogol xaadhaysa kobac dhaqaale oo joogto ah iyo hoos u dhaca jilicsanaanta.Dadaallada si sare loogu qaado DRM waa lama huraan si loo dhimo ku-tiirsanaanta gargaarka dibadda iyo kobcinta madax-bannaanida maaliyadeed,samaynta cabbir muhiim ah oo ka mid ah ajendaha isbeddelka balaadhan sida lagu adkeeyay Qaybta II ee warbixintan.Iyadoo Soomaaliya ay sii xoojiso awooddeeda maaliyadeed,waxay aasaaska u dhigaysaa dawlad adkaysi badan oo isku filan,awoodna u leh inay dhex marto cakirnaanta muuqaalkeeda dhaqan-dhaqaale.Ururinta Dakhliga Gudaha ee Bixinta Adeegga La Wanaajiyey iyo Qandaraaska BulshadaSoomaaliya waxay horumar la taaban karo ka samaysay dhidibbada-dhisidda dawladnimada,samaynta horumarka kordhinta maaliyadda iyo dhaqaalaha,horumarinta hayadaha dawladda ee dhaqaalaha.Si kastaba ha ahaatee,xoojinta sharcinimada gobolka iyo u gudbinta natiijooyinka muwaadiniinta waxay u baahan doontaa dadaal iyo maalgashi aad u weyn.Qaabka qiyaasida caafimaadka Soomaaliya ayaa weli ah kuwa ugu hooseeya adduunka,iyadoo celcelis ahaan rajada nolosha ay tahay 56 sano oo keliya.Kaliya 32 boqolkiiba dhalmada waxaa ka qayb qaata shaqaale xirfad leh,kaliya 21 Soo koobida Hawl fulinta|11boqolkiiba ayaa ka dhaca xarumaha daryeelka caafimaadka ee dalka oo dhan(WHO,2023).Helitaanka waxbarashada ayaa ahaa mid hooseeya labbaatankii sano ee la soo dhaafay,iyada oo in ka yar 25 boqolkiiba carruurta dada dugsiga lagu qoray dugsiyada hoose ama sare,inkastoo kala duwanaansho la taaban karo ee Soomaaliya oo dhan iyo heerarka sare ee waxbarashada.Boqolkiiba konton iyo afar dadku waxay ku nool yihiin meel ka hoosaysa khadka saboolnimada qaranka(Bangiga Adduunka,2024a).Kobcinta DRM waxay lama huraan u tahay dadaalka joogtada ah ee dalka ee dhismaha dowlad-goboleedka iyo bixinta adeegga.In kasta oo dakhliga gudaha uu saddex jibaarmay laga bilaabo US$113 milyan sannadkii 2016 ilaa US$369 milyan 2024,haddana dakhliga gudaha ee DFS iyo GDP ee 3 boqolkiiba iyo cashuurta-GDP ee 2.2 boqolkiiba 2024 ayaa weli ah kuwa ugu hooseeya adduunka.Haddii dakhliga DFS iyo FMS la isku daro,nisbada dakhliga-GDP wuxuu u taagan yahay 4.2 boqolkiiba.8 Waxaa caadi ahaan la qiyaasaa in waddan uu u baahan yahay inuu soo saaro ugu yaraan 15 boqolkiiba cashuurta-GDP-ga si loo bixiyo heerar waara oo adeegyada dadweynaha ee dadkeeda.Dadaaladii DRM ee u dambeeyay waxay muujinayaan calaamado rajo leh,iyadoo saadaasha muujinaysa korodhka suurtagalka ah ee dakhliga gudaha iyo nisbada GDP laga bilaabo 3.0 boqolkiiba 2024 ilaa 4.5 boqolkiiba 2030 ama 6.1 boqolkiiba haddii dakhliga FMS lagu xisaabtamo.Isbeddelladan dakhliga,Soomaaliya waxay awood u yeelan doontaa oo keliya inay bixiso waxbarashada hoose ee ay dawladdu maalgeliso ee dugsiyada hoose iyo dhexe,iyo adeegyada caafimaadka aasaasiga ah oo la gaarsiiyo 25 boqolkiiba dadkeeda marka la gaaro 2030ka.Gaaritaanka boqolkiiba 50 daboolida waxay u baahan doontaa dedaallo la xoojiyay si loo kordhiyo dakhliga gudaha oo la gaarsiiyo ugu yaraan 9 boqolkiiba GDP,halka bixinta adeegga aasaasiga ah ay gaadhayso boqolkiiba 100 ee mujtamaceedu ay u baahan doonto dakhliga gudaha ugu yaraan 15 boqolkiiba GDP.Waxaa jira degdeg dheeraad ah oo lagu horumarinayo DRM ee carqaladaynta gargaarka sida kor lagu soo sheegay.Soomaaliya aad bay ugu tiirsan tahay ODA,kaas oo gaadhay 33 boqolkiiba GDP2022 2024.9 ODA inteeda badan waa ka 8 Xogta dakhligu kuma jirto Somaliland.9 Xeerka Qoondada DFS ee Miisaaniyadda 2025 iyo qiyaasaha shaqaalaha Bangiga Adduunka.baxsan miisaaniyada qulqulka qulqulayana lama saadaalin karo,loogu talo galay wax ka qabashada biniaadantinimo oo waxay ku xiran tahay jahawareer juquraafiyeed.Sidaa darteed,xoojinta dakhliga gudaha iyo abaabulida raasamaal gaar ah ayaa lama huraan u ah horumar waara.Guulaha ugu badan ee dakhli ururinta ayaa la filayaa inay ka yimaadaan balaadhinta salka cashuuraha iyo qoto dheeraynta wax kabeddelka kastamada.Ballaarinta salka canshuurta waxaa lagu gaari karaa:(i)hirgelinta Sharciga Canshuuraha Dakhliga ee Federaalka;(ii)bilaabida cashuuraha iibka;(iii)hirgelinta canshuurta iibka ee FMS,oo ay ku jirto dhaqangelinta ururinteeda marka la soo dejiyo;(iv)kordhinta hufnaanta kharashaadka cashuuraha iyo iswaafajinta codsigooda guud ahaan Federaalka;iyo(v)dhaqangelinta qaab-dhismeedka sharci ee cashuuraha khayraadka dabiiciga ah.Dib-u-habaynta Kastamku waa in ay beegsataa:(i)is-waafajin laaanta tacriifadaha guud ahaan dekedaha DFS iyo FMS;(ii)hirgelinta qiimeynta ad valorem ee alaabta iyo adeegyada;(iii)waafajinta sharciga kastamka hab-maamuusyada iyo heerarka ECA iyadoo laga gorgortamayo si tartiib-tartiib ah u dhaqangelinta Tariif Dibadeed Midaysan(CET);iyo(iv)ballaarinta dadaallada ku dhisan dhijitaalka.Horumarinta maamulka canshuuraha ayaa sidoo kale taageeri karta ururinta dakhliga.Horumaradan waxa lagu gaadhi karaa:(i)hagaajinta joogtaynta iyo sinnaanta ku dhaqanka shuruucda cashuuraha;(ii)fududaynta diiwaangelinta cashuur bixiyaha,xeraynta,iyo hababka lacag-bixinta,oo ay ku jiraan iyada oo loo marayo dadaallada digital-ka ah ee socda iyo kuwa la qorsheeyay;(iii)sare u q aadka adeegyada cashuur bixiyayaasha,awoodda maamul iyo wada jirka maamulka dakhliga;(iv)xoog saarida horumarinta tayada,xulashada/bartilmaameedsiga,iyo caddaaladda la dareemayo ee xisaab-xidhka cashuuraha;iyo(v)wada xidhiidhka iyo waxbarashada cashuur bixiyayaasha oo aad waxtar u leh.Siyaasad kasta oo cashuureed iyo wax kabeddel maamuleed waa inay ka fekertaa saamaynta dhaqan-dhaqaale ee xun ee iman karta,iyo sidoo kale xaqiiqooyinka dhaqaale ee siyaasadeed.Dhisidda kalsoonida iyo hagaajinta u hoggaansanaanta canshuuraha ayaa muhiim u ah kobaca dakhliga xiliga dheer.12|Somalia Economic UpdateXoojinta qaab dhismeedka federaalka maaliyadeed waa shardi lagama maarmaan u ah kobcinta dakhli ururinta,maadaama maqnaanshihiisa ay abuurayso qallooc ku yimaada hawsha dhaqaalaha waxayna culays dheeraad ah saaraysaa cashuur bixiyayaasha,taas oo meesha ka saaraysa qandaraaska bulshada.Qabanqaabada dakhli qaybsiga ee la saadaalin karo iyo hufnaanta ayaa udub dhexaad u ah dadaallada lagu xaqiijinayo in si hufan looga faaideysto kheyraadka maaliyadeed ee federaal kasta.Tartanka cashuuraha ee u dhexeeya heerarka kala duwan ee dawladda iyo cashuurta laban-laabka ah ayaa culays xad dhaaf ah ku abuurta cashuur bixiyayaasha.Tani waxay adkeyneysaa baahida loo qabo dib-u-qeybsiga hababka canshuuraha kastamka ee guud ahaan Federaalka(wareejinta sinaanta awoodda dakhliga),iyo sidoo kale baahida loo qabo iswaafajinta dakhliga iyo canshuurta isticmaalka,iyada oo la tixgelinayo qaybinta aan sinnayn ee ilaha canshuuraha ee gobollada iyo inta u dhaxaysa FMS iyo DFS.Qaadashada shuruuc sharci ah oo ku saabsan qeybinta xeerka canshuuraha,maamulka,iyo awood qeybsiga dakhliga guud ahaan Federaalka,oo ay la socoto goaanka lagu dhisayo Hayad Dakhli oo qayb ahaan madaxbannaan,ayaa muhiim u ah dhamaystirka qabanqaabada federaalaynta maaliyadeed.Ururinta dakhliga gudaha ka sokow,isku xidhka xoogan oo ODA ah iyo abaabulka raasamaal ee gaarka ah ayaa loo baahan doonaa.Ku darida ODA-da jirta ee miisaaniyada qaranka waxay muhiim u noqon doontaa isku xidhka sare loo qaaday,qorshaynta caddaynta ku salaysan,iyo waxtarka,iyada oo sidoo kale la xoojinayo awoodda dawladda si ay u maasho kheyraadkan si hufan.Ugu yaraan,ODA waa in ay si muuqata uga dhex muuqataa miisaaniyadda qaranka oo ay la jaanqaadaan 10 NTP waxay qiyaastay wadarta guud ee loo baahan yahay maalgelinta US$26.2 bilyan muddada shanta sano ah(https:/www.ntp.gov.so/)Qorshaha Is beddelka Qaran ee Soomaaliya(NTP)ee 2025 2029 kharashka ku baxaya.10 Xaalado kala duwan oo hoos u dhaca kaalmada dibadda ayaa u baahan in laga fikiro,oo xeelado maalgelineed oo beddel ah ayaa la sahamiyay.Xeelad isku xidhan oo lagu soo urursho raasamaal gaar ah ee qaybaha adeegyada muhiimka ah ayaa loo baahan yahay in la dejiyo lana hirgeliyo,iyadoo ay la socoto ballanqaadyo cad oo lagu maalgelinayo gol daloolooyinka jira ee adeeg bixinta.Maadaama Soomaaliya ay weli ku sii socoto heerkeeda dowlad-dhisidda,sare u qaadka qandaraaska bulshada iyadoo loo marayoadeeg-bixin wanaagsan oo bulshada ah ayaa aasaas u ah u diyaar-garowga canshuur-bixiyeyaasha ee lagu bixinayo canshuuraha.Marka ay muwaadiniintu bixiyaan cashuurta,waxa ay ka filayaan dawladda in ay u isticmaasho maaliyada dadweynaha si ay ugu bixiso adeegyada guud.Marka la eego awoodda xadidan ay dowladdu u leedahay bixinta adeegyada guud ee la fidiyay,waxaacad in adeeg bixinta Soomaaliya ay tahay in ay ahaato hawl wadaag ah oo ka dhexeeya heerarka kala duwan ee dowladda iyo ganacsiga gaarka loo leeyahay.Si loo gudbiyo doorka dowlad-goboleedka,DFS waxay u baahan tahay inay si cad u qeexdo hawlaha shaqo ee heer waaxeed,taas oo ah,heerka dowladeed ee bixiya adeegyada.Waa muhiim in la fahmo kharashka hawl kasta oo shaqaynasa oo la waafajiyo ilaha maalgelinta ee laga helayo heer kasta,miduun dhexda xawilaada federaalka ama dedaalalda maxaliga ah ee soo ururinta dakhliga.Waxa kale oo muhiim ah in la fahmo doorka ururada aan dowlada ka tirsanayn(shuraakada horumarinta,ganacsiga gaarka ah,bulshooyinka maxalliga ah)iyo awoodahooda maalgelineed,iyo isku xidhka heer kasta ah.PART I Somalia Macroeconomic Summary1516|Somalia Economic Update 1 Global and Regional Developments11 11 Global and regional developments are drawn from the Global Economic Prospects,World Bank June 2025.The global economy is experiencing rising trade ten-sions and heightened trade policy uncertainty,leading to a substantial deterioration of the outlook.Global growth is estimated at 2.8 percent in 2024,and expect-ed to slow rapidly due to a sharp escalation of trade tensions and the pervasive effects of a highly uncertain global policy environment.Global headline inflation remains high compared with central bank targets and pre-pandemic levels,with recent increases in advanced economies driven by elevated core inflation,particular-ly in services,and influenced by trade restrictions.The global economic outlook is heavily dependent on trade policy developments,alongside risks such as higher in-flation,weaker growth in major economies,worsening conflicts,and extreme weather events.Conversely,re-ducing trade tensions through decreased restrictions and trade agreements could improve the situation,highlight-ing the importance of multilateral policy efforts to cre-ate a predictable and transparent environment for re-solving trade tensions.Commodity prices experienced a significant downturn in April due to worsening growth projections.Oil prices saw a particularly sharp drop,influenced by a notable in-crease in production from OPEC countries and a dimin-ishing demand outlook.Similarly,base metal prices fell as markets anticipated considerable challenges to global manufacturing and industrial activities.Looking ahead,overall commodity prices are projected to decrease by 12 percent in 2025,with a further slight decline expected in 2026.This trend is primarily attributed to the anticipat-ed substantial decrease in oil prices this year,driven by a slowdown in oil consumption.Economic activity in Sub-Saharan Africa(SSA)is antic-ipated to rise from 3.5 percent in 2024 to 3.7 percent in 2025 and then average 4.2 percent in 2026 27.Regional growth this year and next is anticipated to be weaker than previously expected,owing to the deterioration in the ex-ternal environment and domestic headwinds.In many SSA economies,easing inflationary pressures provid-ed that recent upticks prove temporary should allow for cuts in monetary policy rates,supporting domestic demand.However,elevated government debt,still-high interest rates,and rising debt servicing costs have nar-rowed fiscal space,prompting fiscal consolidation efforts in many countries,while financing needs remain high as international development assistance is cut back.Per capita income in SSA is projected to expand by an average of 1.6 percent a year in the period 2025 27,with growth in 2025 being revised down by 0.4 percentage points.Overall,the growth trajectory faces significant risks,in-cluding weaker external demand due to trade tensions,a potential sharper slowdown in China,and increased political instability,particularly with escalating conflict in Sudan affecting food prices.In addition,rising sov-ereign spreads,prolonged high global interest rates,re-duced donor support,and adverse weather events such as droughts further threaten SSA economies with debt distress and hinder growth prospects.Part I Somalia Macroeconomic Summary|17 2 Recent Economic Developments in SomaliaSomalias economy continued its overall strong performance in 2024,with growth estimated at 4.0 percent supported by improved performance in agriculture,continued investment,albeit from a low base,and improved private consumption supported by sustained growth in remittances.Increased agricultural output and declining global commodity prices led to continued easing of inflation pressures.Overall inflation rate year-on-year(yoy)fell below 6 percent in 2024.The FGS budget ended with a small fiscal surplus driven by improvements in revenue collection,but reliance on external financing for service delivery continues.Poverty remains high and widespread,with elevated vulnerability to shocks.Medium-term growth is expected to remain between 3 and 4 percent,albeit with significant downside risks,such as weather-related shocks,uncertain aid flows,political and security challenges,and uncertain global trade environment.The economy remains resilient despite significant challengesFollowing a prolonged and severe drought in 2020 23 and the 2022 global commodity price shocks,econom-ic growth recovered,estimated at 4.0 percent in 2024 compared with 4.2 percent in 2023(Figure 2.1).GDP per capita grew by 1.1 percent in 2024,slightly down from 1.4 percent in 2023.However,in per capita terms growth re-mains modest with an average negative real GDP per cap-ita growth of 0.4 percent in 2019 24 and hence does not generate the jobs needed to reduce poverty.Improved weather conditions supported the continued rebound of exports of goods and services,mainly driven by a sharp recovery in livestock exports.Nevertheless,net exports continued to hinder growth as the economy remains heavily dependent on imports.Private sector credit grew by 23 percent in 2024 compared with the previous year,boosting construction,real estate,and investment.Re-mittances picked up in 2024,growing by 25 percent due to improved global financial conditions in advanced and emerging economies with disinflation and easing of monetary policies.Remittances continue to be a life-line in cushioning households against recurrent shocks and supporting consumption and investment.On the demand side,private consumption remains the key driver of growth.Private consumption dominates overall GDP,representing 124 percent in 2024(Figure 2.2),and is highly dependent on external inflows,mainly re-18|Somalia Economic Updatemittances and humanitarian aid.Government consump-tion remains modest,accounting for 7.6 percent of GDPin 2024,as the country is rebuilding its economic insti-tutions and works to transition out of fragility.Although still low,investment saw a substantial rise of 12 percent and accounted for 23 percent of GDP in 2024,mainly in construction,equipment,and infrastructure.Improved weather conditions and changes to methodology for es-timating merchandise trade fl ows have supported a sig-nifi cant recovery in exports.Total exports of goods and services have more than doubled compared with the pre-COVID-19-pandemic level and reached 20 percent of GDP in 2024,up from 13.1 percent in 2019.Converse-ly,total imports increased substantially by 17 percentage points of GDP during this period,to reach 73.4 percent of GDP in 2024,mainly driven by increased demand for foreign goods and services,increasing energy demand for domestic production,and recurrent climatic shocks necessitating increased food imports.In this regard,the economys heavy reliance on imports led to net exports being a drag on growth and contributed to the chroni-cally high trade defi cit,at 62.1 percent of GDP in 2024,fi -nanced by remittances and ODA.12 The Somalia National Bureau of Statistics(SNBS)has published the Somalia Integrated Enterprise Survey in August 2024.This survey is part of the larger initiative to gather comprehensive business data throughout Somalia,which is linked to the Somalia Integrated Business Establishment Census(SIBEC).On the supply side,the services and agriculture sec-tors are the core drivers of growth.While a lack of sup-ply-side data12 makes it diffi cult to analyze the composi-tion of growth in detail,services and agriculture are key contributors of economic activities.Services,particularly the wholesale and retail trade,telecommunications,and fi nancial services,continue to support GDP growth.More-over,favorable rains are contributing to continued rever-sal of the historic fi ve-season severe drought in 2020 23,driving recovery in overall agricultural productivity.Nev-ertheless,the country experienced average to below-av-erage rainfall,mostly in the Deyr(October December)rainfall season,with associated severe Dyer fl oods par-ticularly in riverine areas in 2024 affecting crop produc-tion(FSNAU,2025a).Cereals production and other ma-jor crops declined in 2024 compared with the previous year,with the exception of maize,which recorded mod-est growth(Figure 2.3,panel a)(FSNAU,2025b).Persis-tent weather shocks,limited mechanization,and poor soil fertility,compounded by systemic ineffi ciencies such as weak extension services and deteriorated infrastruc-ture,have stifl ed robust growth in crop production leav-ing domestic food demand unmet.FIGURE 2.2Demand growth drivers:contribution to GDP growthPercent105051015201920202021202220232024ePrivate cons.Government cons.GFCFNet ExportsSource:SNBS and World Bank staff estimates.FIGURE 2.1Somali economic growth remains too modest to make much of an improvement in living standardsPercent6420246201920202021202220232024eReal GDP growthReal GDP per capita growth201920192019201920202020202020202021202120212021202220222022202220232023202320232024e2024e2024e2024e6666444422220 0 0 02 2 2 24 4 4 46 6 6Source:SNBS and World Bank staff estimates for 2024.Part I Somalia Macroeconomic Summary|19Declining inflation rate with improved weather conditions and continued easing of global commodity pricesInflationary pressures have eased but inflation has re-mained sticky(Figure 2.4,panel a).De facto dollariza-tion supports price stability as the Central Bank of Somalia(CBS)continues to develop its core functions.Overall in-flation averaged 5.5 percent in 2024 compared with 6.1 percent in 2023.As agricultural output increased,food in-flation contracted by 1.2 percent in 2024 compared with 13 In May 2025,the SNBS published national CPI estimates for the first time,supporting improvements in macroeconomic statistics.0.7 percent growth in 2023 in Mogadishu.13 However,supply-side challenges have kept food inflation high in Somaliland.The easing of global commodity prices re-duced domestic fuel and energy prices during 2024,though these remain above pre-2022 levels.Rising local housing rents and telecommunication costs,driven by increased prices for telephone equipment and transportation,con-tinue to contribute to overall inflation.Overall inflation stood at 3.6 percent in March 2025(yoy),as food prices declined.In line with further easing of global commodity prices,inflation is projected to slow to 4.2 percent in 2025.FIGURE 2.3Agriculture production continues to recover from the 2020 23 severe droughta.Crop production 100=2011 13)CowpeasMaizeSesameSorghum20192020202120222023202420406080100120b.Live animals exports(100=2019)ShoatsCattle20192020202120222023202450100150200Source:World Bank staff estimates using data from FAO Somalia(2024).Note:Livestock export data cover both Berbera and Bossaso ports.FIGURE 2.4Inflationary pressures eased,driven by decline in food pricesa.Overall inflation(percent)PuntlandMogadishuSomaliland01/202105/202109/202101/202205/202209/202201/202305/202309/202301/202405/202409/202440481216b.Annual inflation rate(Mogadishu,percent)Food&BeveragesOverall20142024 average2014201520162017201820192020202120222023202440481216Source:SNBS,Ministry of Planning Puntland,and Ministry of Planning Somaliland(2025).20|Somalia Economic UpdatePoverty impactNowcasting of national poverty from 2022 based on pri-vate consumption growth suggests there is poverty re-duction,although this varies year to year.This trend is expected to continue throughout 2025 to 2027(Figure 2.5,panel a).Due to favorable weather conditions,Somalias food insecurity improved in 2023 and 2024.However,rainfall in H1-2025 is forecast to be suppressed.This,cou-pled with the reduction of humanitarian aid,is expect-ed to increase food insecurity and negatively impact vul-nerable households(Figure 2.5,panel b).These external shocks may,in turn,weaken the projected poverty reduc-tion.Therefore,accelerating poverty reduction will re-quire strengthening climate resilience,especially for the rural and nomadic population,and promoting inclusive growth through job creation and increased human capital.Somalias fi nancial sector advances with regulatory enhancements and digital innovations to support growth and inclusionThe Somali fi nancial sector is making progress on its development journey,with the CBS gradually building its regulatory and supervision capacities to support the sectors growth.While the penetration of banking servic-es remains low(estimated that 8.8 percent of the popu-lation aged 15 owned a bank account in 2022),mobile money services are used extensively for payment cover-ing over 90 percent of households.As of 2024,the fi nan-cial sector comprised 14 commercial banks(including one foreign bank branch),15 money transfer businesses,and four mobile money service providers licensed with the CBS.Important improvements in the legislative frame-work for the sector have been recently introduced with the enactment of the Financial Institutions Law,the amend-ments to the Anti-money Laundering/Countering the Fi-nancing of Terrorism(AML/CFT)Act,and the Takaful Act.Additional bills such as the National Payment System Bill,as well as the CBS Amendment Bill,are also under review by parliament and expected to be adopted over the next year.These pieces of legislation will expand supervision to non-bank fi nancial sector institutions(NBFIs),strength-en the AML/CFT framework,and enhance the effi ciency of payments.The CBS also further enhanced the fi nancial sec-tors infrastructure by soft launching the Somalia Instant Payment System(SIPS)in December 2024.The SIPS is a digital payment platform designed to enable real-time,se-cure,and seamless fi nancial transactions across Somalia.Eliminating silos in the payment ecosystem with SIPS will reduce transaction costs,improve cash fl ow for business-es,and enhance the overall user experience for individ-uals and organizations.It would facilitate person-to-per-son(P2P),person-to-business(P2B),business-to-person(B2P),and business-to-business(B2B)transactions,while also supporting government payment streams.Continued modernization and development of the fi nancial sector is necessary to facilitate private sector development and con-tribute to further domestic revenue mobilization.Somalias banking sector continued to grow between 2023 and 2024,albeit at a slower pace.Commercial banks assets reached US$2.0 billion by December 2024,a 13-per-cent increase from the previous year,at a slower pace com-pared with previous years.Cash on hand and fi nancing assets were responsible for the annual growth in assets(Figure 2.6).The slowdown in asset growth compared with FIGURE 2.5Poverty reduction is projected to stagnates,hindered by food insecurity caused by unfavorable weath-er and reduced humanitarian aid.a.Nowcasting of national povertyNational Poverty(percent)Per capita consumption(US$)Per capita consumptionPoverty2022202320242025202620274850525456202220222022202220232023202320232024202420242024202520252025202520262026202620262027202720272027840880920960Source:World Bank staff calculations based on the MPO.b.IPC classifi cation(percent)11/202202/202305/202308/202311/202302/202405/202408/202411/202402/2025020406080100Phase 1Phase 2Phase 3Phase 4Phase 5Source:IPC or Integrated Food Security Phase Classifi cation.Part I Somalia Macroeconomic Summary|21previous years could be partially attributed to limited fi-nancial inclusion given that demand deposits only grew by 5 percent in 2024 compared with 21 percent the year before.Commercial banks are lending more than in previous years,but financial intermediation remains low com-pared with peers.Credit to the private sector increased by 23 percent between 2023 and 2024,reaching US$657 million.Banks loan-to-deposit ratio(LDR)also has slow-ly but steadily increased over the years,from 25 percent in 2022 to 29 percent in 2024,suggesting increasing in-termediation by commercial banks.However,there is still significant room for improvement as cash on hand remains the largest asset class on banks balance sheets(40 percent of total assets)and credit to the private sector in terms of GDP remains around 5 percent.Furthermore,lending also remains concentrated in trade financing,real estate,and construction,accounting for 72 percent of total financing assets.Macroprudential indicators of the banking system are overall positive.Tier 1 capital was around 14 percent,liquid assets were about 46 percent of total assess,and non-performing financial assets were 3 percent of total financing assets at the end of 2024,which is in line with thresholds established by the CBS and international best practice.Furthermore,earnings after taxes and zakat also significantly recovered reaching US$23 million in 2024 compared with US$4 million in 2023.14 This increase reflects methodological change in the estimation of exports in 2024.Continued merchandise exports recovery and higher external inflows in 2024 supported a narrowing of external imbalancesInternational trade continued to rebound in 2024 from the effects of prolonged severe drought and high com-modities prices.Improved climatic conditions in 2024 and changes to the methodology for estimating mer-chandise trade flows boosted export recovery,with total merchandise exports increasing by 67 percent in 2024 compared with 2023,14 largely driven by livestock,the dominant contributor to export earnings,together with crops and vegetable oil products(Figure 2.7,panel a).Live-stock exports,including live animals and animal prod-ucts,increased by 23 percent during the same period due to strong demand from key markets in the Middle East,such as Saudi Arabia and the United Arab Emirates.Live-stock exports reached US$951 million in 2024,represent-ing 62 percent of the total merchandise exports(Figure 2.7,panel a).Meanwhile,small crops and vegetable oil exports also grew over five times during this period,re-flecting improved agricultural production.Similarly,fish-eries an emerging sector also grew over five times in 2024,signaling the untapped potential even with the weak infrastructure and regulatory capacity constraints.Somalias total import bill continues to rise in line with consumption and investment growth.Overall,merchan-dise imports increased by 30 percent in 2024,mainly driv-FIGURE 2.6Somali banking sector continues to grow but at a slower pacea.Select balance sheet categories(million)Financing assetsTotal assetsCash on handCustomer deposits12/202203/202306/202309/202312/202303/202406/202409/202412/202405001,0001,5002,0002,500b.Banking sector domestic assets growth(percent)30 20 1001020304050CBS&other commercialbanks balancesCash on handFinancing assetsInvestments in equitiesInvestments in propertyand real estateFixed,intangible,andother assets2022202320232024Source:Central Bank of Somalia database.22|Somalia Economic Updateen by imported food,oil,consumer goods,medical,and electrical products(Figure 2.7,panel b).Food imports re-main the key driver of the total import bill reflecting the effects of recurrent weather shocks,particularly droughts and floods,and the limited domestic production to meet domestic food demand.Overall,food imports account for one-third of the total merchandise imports and grew by 26 percent(in nominal terms)in 2024 to reach US$2.5 billion.In addition,Somalia relies on imported oil for energy production,transport,and industrial use.As a re-sult,the total oil import bill accounts for 8 percent of the total merchandise imports and increased by 17.6 percent during this period(Figure 2.7,panel b).Imports of con-struction materials,which averaged 15 percent of the total merchandise imports in the past five years,have declined.Somalia runs a chronically high structural trade defi-cit,as the economy is heavily import-dependent.The trade deficit widened slightly to 62.1 percent of GDP in 2024,from 60.8 percent in 2023.The merchandise defi-cit reached US$7.6 billion in 2024,nearly five times to-tal merchandise imports.This sharp rise reflects growing reliance on imported goods,particularly essential items such as food,fuel,medical products,and construction materials.The services sector trade balance also remains in deficit,growing from US$0.7 billion to US$1.1 billion during this period though less pronounced compared with merchandise trade.The current account deficit nar-rowed slightly by 0.4 percentage point of GDP to 8.9 per-cent of GDP in 2024 on the back of strong growth in remit-tances and external on-budget aid.External flows mainly grants and remittances,both estimated at 58 percent of GDP in 2024,and foreign direct investment(FDI)estimat-ed at 5.7 percent,financed the deficits.Remittances picked up in 2024,reflecting improving global conditions in many advanced and emerging econ-omies.Workers remittances recorded a 25-percent increase in 2024,with growth attributed to improving global fi-nancial conditions due to an easing of monetary policies and continued disinflation experienced in countries where most of the Somali diaspora resides(the United Kingdom,the United States,Sweden,Australia,South Africa,the Gulf states,and neighboring countries).These remittances also support consumption and investment,and help to cush-ion households in times of shocks.ODA inflows,estimated at 32.9 percent of GDP in 2024,which coupled with remit-tances help finance Somalias external imbalances and pro-vide humanitarian,development,and stabilization support.FIGURE 2.7Recovery in international trade continued in 2024 supporting the weak external sectora.Select balance sheet categories(US$million)02004006008001,000LivestockLivestock Product(Meat)Fishery exportAnimal Skins&ProductsCrops&Vegetable OilForest ProductsOther20232024b.Total merchadise imports(US$million)05001,000 1,500 2,000 2,500 3,000FoodClothes&FootwearConstructionCars&spare partsOilMedical productsBeverages&TobaccoOthers20232024Source:Central Bank of Somalia 2024.FIGURE 2.8Workers remittances have remained relatively resilient to recurrent shocksWorkers remittances(US$million)05001,0001,5002,0002,5003,00020202021202220232024Source:Central Bank of Somalia(2024).Part I Somalia Macroeconomic Summary|23Sustained domestic revenue mobilization efforts are bearing fruit in supporting FGS fiscal policy The FGS has remained committed to fiscal prudence.The FGS budget ended with a small surplus of 0.1 percent of GDP in 2024,thanks to continuing improvements in revenue collection and prudent spending.Domestic reve-nue remained at 3.0 percent of GDP in 2024,with tax rev-enue increasing by 0.2 of percentage point of GDP,due to improved collection of customs duties,sales tax,and income tax.This was achieved through increased use of the Somalia Customs Automated System(SOMCAS),intro-ducing withholding of sales tax from merchant accounts,and an expansion of the income tax base to include doc-tors and university professors.Nevertheless,Somalias do-mestic revenue remains one of the lowest in the world,with the bulk of the FGS total revenue coming from ex-ternal grants.Disbursements of external grants,both budget support and project funds,came in higher than budgeted(4.6 percent of GDP in 2024),including from the World Bank,the EU,Trkiye,and the United Arab Emirates.External grants continued to dominate total revenue resources,increasing by 33 percent in 2024 com-pared with FY23 outturn(Figure 2.9)to reach US$543.4 million,accounting for 59.5 percent of the total revenue.FGS domestic revenue growth is driven by tax policy and administration changes,including higher revenue col-lection from customs administration,broadening the tax base,and automation of road and rental income taxes.Nontax revenue declined by 3 percent in 2024 as collection from telecoms spectrum fees fell by 35 percent compared with 2023 and was 30 percent below the tar-get(Table 2.1).Nonetheless,it remains the second-larg-est driver of domestic revenue after trade taxes,account-ing for 27 percent during this period.Moreover,only 25 percent of the planned revenue from fishing licens-es fees materialized,contributing to this decline.Trade taxes,the main driver of domestic resources,increased by 9.6 percent in 2024 and accounted for 45.7 percent.Taxes on goods and services,the third-largest category,in-creased by 37 percent during this period,driven by sales tax.While modest,personal income and corporate tax-es recorded the highest increase of 48 percent,with per-sonal income tax from private and public employees driving performance.Public expenditure continues to increase,supported by revenue growth(Table 2.1).FGS expenditure grew by 0.9 percentage points to 7.5 percent of GDP in 2024.Almost all expenditure is recurrent and non-discretionary,dom-inated by the wage bill and security costs,as the country continues to establish basic functions needed for stabi-lization and state-building.Capital investments remain very small,at only 0.2 percent of GDP in 2024,and social services are financed by external grants.Despite the unre-solved fiscal federalism agenda,intergovernmental trans-fers continued to increase,mainly reflecting improved implementation of projects and higher budget support grants.They increased by nearly one-third,reaching 18 percent expenditure in 2024.In this context,the FGS has limited capacity to respond to recurrent shocks and fi-nance critical investments that could boost economic growth and reduce poverty.The total wage bill dominates FGS spending,making up 38 percent of expenditures in 2024(2.8 percent of GDP).This is due to increased security and civil service wages,with security wages comprising over 50 percent of the total wage bill for the past three years(Figure 2.10,panel a).The security sector wage bill rose by 22 per-cent in 2024,accounting for 21 percent of FGS spend-ing,while the civil service wage bill grew by 11 percent.Goods and services expenditure,the second-largest cat-egory,increased by 48 percent.Social benefits rose by 18 percent,driven mainly by cash transfers under the Bax-naano program.Humanitarian and security financing largely remains off-budget.FIGURE 2.9Percentage growth in 2024 actual revenues,compared to 2023 outturns and 2024 budgetTotal revenue performance in 2023 and 2024(percent)30 20 100102030405060GrantsNon-tax revenueOther taxesGoods&servicesTrade taxesIncome&profitsvs 2023 outturnvs BudgetSource:FGS Ministry of Finance(MoF)2024.24|Somalia Economic UpdateTABLE 2.1Government fiscal operations,2019 2024(US$million)201920202021202220232024Actual Actual Actual Actual Actual FGS Budget FGS Actual vs 2023 actual vs budget Revenue and grants 337.8 506.8 376.5 721.9 738.1 1,040.9 912.7 24%-12%Domestic revenue 229.7 211.2 229.6 262.7 329.5 346.2 369.4 12%7%Tax revenue 154.7 139.5 162.8 181.7 224.8 241.4 267.8 19%Taxes on income,profits,property 11.7 16.2 15.8 18.7 24.4 23.2 36.2 48V%Taxes on goods and services 25.0 21.3 23.4 32.8 38.3 46.6 52.4 37%Taxes on international trade 107.0 91.1 109.0 116.2 154.1 164.5 168.9 10%3%o/w import tax on khat 16.6 5.5 11.6 13.7 17.2 19.0 17.1 0%-10%Other taxes 11.1 11.0 14.6 14.1 8.0 7.0 10.3 29F%Non-tax revenue 74.9 71.7 66.8 81.0 104.7 104.8 101.6-3%-3%o/w telecoms spectrum fees 8.7 1.7 1.2 4.1 8.4 7.8 5.4-35%-30%Grants 108.1 295.6 147.0 459.2 408.6 694.7 543.4 33%-22%Budget support 65.5 123.1 2.5 145.5 138.6 185.0 186.4 34%1Project support 42.6 172.5 144.5 313.7 270.0 509.7 357.0 32%-30Expenditure 315.7 482.2 460.1 719.5 712.2 1,079.3 905.2 27%-16%Compensation of employees 162.8 227.0 250.1 259.6 292.2 360.9 341.6 17%-5%Use of goods and services 92.7 80.3 106.1 140.7 138.2 324.5 204.5 48%-37%Interest and other charges-1.8 0.9 0.8 5.1 9.8 7.5 47%-23%Transfers(intergovernmental)45.0 90.2 45.9 111.2 126.3 218.5 160.3 27%-27%Social benefits-62.1 39.9 188.9 130.6 85.6 153.8 18%Other expenses 0.4 2.2 1.3 5.1 5.4 16.2 9.0 66%-45pital 14.8 18.6 16.1 13.2 14.4 63.8 28.5 98%-55%Budget balance 22.1 24.6-83.6 2.4 25.9-38.37.5Memo:Nominal GDP(US$Millions)8,655 8,628 9,484 10,203 10,969 12,109 12,109 Source:FGS Ministry of Finance,March 2025.FIGURE 2.10FGS spending remains unchanged dominated by wage bill,security,and administrative costs a.FGS expenditure by economic categories(US$million)04080120160200240Security personnel wage billCivil service wage billGoods&servicesTransfersSocial benefitsCapital202220232024b.FGS sector spending(US$million)02004006008001,0002021202220232024Admin.ServicesSocial servicesEconomic servicesTransfers incl.projectsDefence&securitySource:FGS Ministry of Finance.Part I Somalia Macroeconomic Summary|25Domestic revenue mobilizations efforts and increased intergovernmental grants are supporting fiscal operations at the FMS levelFiscal performance improved across all Federal Member States(FMS)in Somalia,bolstered by increases in domes-tic revenue and subnational grants in 2024.However,do-mestic revenue improvements were modest compared with those at the FGS level,despite some FMS collecting customs revenue.Puntland State of Somalia(PSS)saw a domestic revenue increase of 4.2 percent compared with the previ-ous year with customs revenue increasing marginally.Rev-enue collected by Jubaland State of Somalia(JSS)increased by 1.7 percent only,mainly driven by trade taxes and tax-es on goods and services(Table 2.2).Other FMS South-West State of Somalia(SWS),Galmudug State of Somalia(GSS),and Hirshabelle State of Somalia(HSS)also saw increases in domestic revenue,primarily from taxes on goods and services.Despite improved fiscal performance,the fiscal space remains limited,constraining service de-livery,as most spending across the FMS is allocated to wage bills and procurement of goods and services,leaving little room for public investment.Notably,capital spending is minimal in all FMS except Puntland,where it accounted for 15.6 percent of total spending in 2024.External grants continued to play a critical role in supporting fiscal oper-ations,although they declined by 25 percent in JSS,high-lighting the ongoing reliance on external aid(Table 2.2).Implementing the 2025 FGS budget will require sustained efforts to mobilize higher revenueFGS revenues in the 2025 budget jumped sharply to 10.2 percent of GDP,up from 7.5 percent in 2024,driven by ex-pected fast implementation of externally funded projects.Out of a total US$1.36 billion in revenue,external grants are anticipated to reach US$903 million,largely due to projects financed by the World Bank and African Development Bank(AfDB).Budget support grants are set to decrease slightly due to lower bilateral contributions.Domestic revenues are budgeted at US$430 million(or 3.3 percent of GDP),an increase from 3 percent in 2024.However,fiscal risks have increased since budget formulation with the slowdown of economic growth and foreign aid cuts expected to affect negatively tax revenue,necessitating consolidation of spend-ing.Slower implementation of projects will reduce both rev-enue and expenditure and will thus remain budget neutral.TABLE 2.2Fiscal operations at subnational governments in 2024(US$million)PuntlandJubalandSouth WestGalmudugHirshabelle2023202420232024202320242023202420232024Revenue and grants 95.9 106.8 47.8 43.7 20.5 23.1 22.8 27.4 15.4 19.5 Domestic revenue 85.1 88.6 29.5 30.0 5.0 5.9 8.4 10.5 4.0 6.5 Trade taxes 43.1 52.7 15.0 14.1 0.5 0.5 0.3 0.1 0.4 0.6 Taxes on goods&services 14.4 15.3 5.9 4.9 1.0 1.4 6.5 7.7 2.8 4.1 Income&corporate taxes 7.0 7.0 1.8 2.2 3.0 3.6 0.8 1.2 0.5 1.0 Other taxes 2.2 2.6 0.1 0.1 0.0 0.0 -0.3 0.5 Other revenue 18.4 11.1 6.7 8.7 0.4 0.4 0.7 1.6 0.1 0.3 Grants 10.8 18.2 18.3 13.7 15.5 17.2 14.4 16.9 11.4 13.0 Expenditure 98.0 104.7 46.5 44.6 20.7 22.1 22.7 27.4 14.6 19.4 Wages&Salaries 47.3 54.1 24.4 24.8 11.7 13.0 11.0 10.5 6.66.9Goods&Services 34.2 31.1 16.2 13.0 8.0 8.5 9.5 12.6 5.29.7Grants 0.5 0.4 -0.3 0.3 1.82.4Other expenses 2.1 1.8 4.5 6.1 0.0 0.0 0.1 0.3 0.50.1Social benefits 1.3 1.7 0.1 0.1 -Capital 12.6 15.6 1.3 0.5 1.0 0.6 1.8 3.6 0.40.3Source:FMS Ministry of Finance data.Note:GSS=Galmudug State of Somalia;HSS=Hirshabelle State of Somalia;JSS=Jubaland State of Somalia;PSS=Puntland;SWS=South-West State of Somalia.26|Somalia Economic UpdateIn 2025,total spending,although highly ambitious,is expected to reach US$1.36 billion,accounting for 10.4 percent of GDP,up from 7.5 percent in 2024 due to in-creased capital spending,operational expenses,and the hiring of new teachers(Figure 2.12,panel a).The wage bill is budgeted to increase by 17 percent,mostly due to the hiring of teachers in 2024.Capital expenditure,main-ly funded by donor projects in energy,urban development,roads,and education,are expected to rise to US$180 mil-lion.Goods and services spending increased by 21 percent due to education,training,consulting,and project imple-mentation,while the wage bill is projected to grow by 2.4 percent,and social benefits are forecast to decrease by 10 percent.Social services ministries and agencies,including projects transfers,are allocated the highest budget,increas-ing by 58 percent to US$329 million.Health sector spend-ing is budgeted to increase by 75 percent to US$92 million,social assistance by 56 percent to US$127 million,and ed-ucation spending by 47 percent to US$110 million,driv-en by the need for more educational inputs,salaries,and school buildings.Economic sectors are allocated the sec-ond-largest budget,rising by 50 percent to US$274 million,primarily fueled by donor-funded investments in urban re-silience,energy,and water(Figure 2.12,panel b).Pressures to increase security spending are building up in the con-text of declining foreign aid and upcoming local elections.FIGURE 2.12Total expenditure increased due to heightened capital investments and operational costsa.Spending Economic categories(US$million)02004006008001,0001,2001,40020232024 Budget2025 BudgetWage BillGoods&servicesTransfersCapitalSocial benefitsSubsidies InterestOthersb.FGS sector spending(US$million)02004006008001,0001,2001,4002023 Actual2024 Budget2025 BudgetAdministrationDefence and SecurityEconomic ServicesSocial ServicesSource:FGS MoF Outturn Reports and Appropriation Act 2025.Note:Social services(administrative classification)include education,health,and labor ministries and agencies.FIGURE 2.11The 2025 budget is primarily supported by externally funded projects.a.FGS resource envelope(US$million)04008001,2001,600202220232024Budget2024Actual2025BudgetDomestic revenueGrantsb.FGS revenue components(US$million)0200400600800Tax RevenueNon-tax revenueGrants-projectsGrants-budget support2023 Actual2024 Budget2025 BudgetSource:FGS MoF Outturn Reports and Appropriation Act 2025.Part I Somalia Macroeconomic Summary|27Somalia achieved a historic debt relief milestone in December 2023Debt relief from reaching the HIPC Completion Point eliminated virtually all of Somalias external debt.The Paris Club agreed upon a HIPC Initiative exit treat-ment for Somalia in March 2024,canceling 99 percent of debt owed to its members.While debt sustainabil-ity has improved with debt relief,significant risks re-main.The country is assessed to be at moderate exter-nal and overall risk of public debt distress.At the end of 2024,outstanding public debt was US$778 million,or 6.1 percent of GDP.This included US$669 million in public and publicly guaranteed(PPG)external debt,15 Somalia LIC-DSA November 2024.and US$68 million in central government wage arrears.This debt burden constrains Somalias fiscal space,lim-iting the Governments ability to invest in essential ser-vices and development projects.The high costs of ser-vicing debt often in the form of substantial interest payments divert critical resources away from sectors such as health care,education,and infrastructure,exac-erbating the nations socio-economic challenges.The authorities have continued to make good faith efforts to reach agreement with individual creditors to restruc-ture Somalias PPG external debt.The recent joint IMF-World Bank Joint Low-income Debt Sustainability As-sessment15 indicates that Somalias public debt remains sustainable in the medium term.TABLE 2.3Public and publicly guaranteed debt and debt service,2022 2025(US$million)Debt stock(end of period)Debt service20222024202520242025US$millionPercent of totalPercent of GDPUS$millionPercent of GDPTotal PPG debt3,894.8100.038.212.612.30.10.1Domestic Debt67.81.70.70000Others67.81.70.70000External debt3,827.098.337.512.612.30.10.1Multilateral creditors1,074.827.610.59.79.40.10.1Bilateral creditors2,749.770.626.92.92.900Paris Club2,004.651.519.60.20.200Non-Paris Club745.119.17.32.72.70.10.1Source:Central Bank of Somalia,IMF,and World Bank staff estimates.Notes:Domestic debt covers legacy government wage arrears.28|Somalia Economic Update 3 Medium-Term Outlook and RisksSomalias continued recovery in growth is supported by macroeconomic and structural reforms implemented in the context of HIPC Completion Point.However,the overall aid uncertainty is expected to dampen growth in the medium term.Significant risks remain from climate shocks,insecurity,slow domestic revenue growth and emerging global trade and aid policy challenges.The country aims to expand public services and increase domestic revenue through new tax legislation and customs modernization.Somalias growth prospects are influenced by the global economic outlook and government policies.Further easing of global commodity prices is expected to keep inflation low and c
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GabonEconomicUpdateSPECIAL TOPIC:Building and Preserving Gabons Wealth for Better Livelihoods June 20252025Public Disclosure AuthorizedPublic Disclosure AuthorizedPublic Disclosure AuthorizedPublic Disclosure Authorized 2025 International Bank for Reconstruction and Development/The World Bank Some rights reserved.This work is a product of the staff of The World Bank with external contributions.The findings,interpretations,and conclusions expressed in this work do not necessarily reflect the views of The World Bank,its Board of Executive Directors,or the governments they represent.The World Bank does not guarantee the accuracy,completeness,or currency of the data included in this work and does not assume responsibility for any errors,omissions,or discrepancies in the information,or liability with respect to the use of or failure to use the information,methods,processes,or conclusions set forth.The boundaries,colors,denominations,and other information shown on any map in this work do not imply any judgment on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries.Nothing herein shall constitute or be construed or considered to be a limitation upon or waiver of the privileges and immunities of The World Bank,all of which are specifically reserved.Rights and PermissionsThe material in this work is subject to copyright.Because The World Bank encourages dissemination of its knowl-edge,this work may be reproduced,in whole or in part,for noncommercial purposes as long as full attribution to this work is given.AttributionPlease cite the work as follows:“World Bank.2025.Gabon Economic Update:Building and Preserving Gabons Wealth for Better Livelihoods.Washington,DC:World Bank.”All queries on rights and licenses should be addressed to World Bank Publications,The World Bank Group,1818 H Street NW,Washington,DC 20433,USA;e-mail:pubrightsworldbank.org.iContentsAcknowledgments.ivAbbreviations and Acronyms.vOverview.11.Recent Economic Trends and Outlook for Gabon.8I.Global and regional growth remains below pre-pandemic levels and vulnerable to a highly uncertain context .8II.Growth accelerated in 2024 but remained constrained by structural challenges.10III.Creating jobs remains a key pathway for poverty reduction .12IV.Inflationary pressures gradually abated,allowing the regional central bank to start easing monetary policy in 2025.15V.Gabons trade position benefited from strong commodity exports,while facing trade barriers and infrastructure challenges.16VI.Combined with lower oil revenues,an expansionary spending policy caused a deterioration of the fiscal position in 2024.19VII.Gabon has taken actions to more actively manage public debt,but still faces high public debt and debt servicing costs.23VIII.Firms face challenges to access financing whereas financing costs increased for the state.28IX.Gabons growth outlook is exposed to a challenging and highly uncertain global environment.29X.Key actions to help Gabon achieve stronger growth,create more jobs,and raise living conditions .332.Assessing the Value of Forest Ecosystem Services for Gabons Economy.37SECTION I.Introduction.Measuring national wealth why does it matter?.37SECTION II.State and trends of Gabons national wealth.40SECTION III.Gabons forest ecosystem service accounts:Measuring the conditions and economic contributions of Gabonese forests.48SECTION IV.Building a prosperous future:How can Gabon protect and expand its national wealth and make the most of forest ecosystem services?.58Annex.68References.71iiList of Figures,Tables and BoxesFIGURESFigure 1.Oil and non-oil GDP growth and share of oil and non-oil GDP.10Figure 2.Gabon:Supply-side contribution to real GDP growth(in percent),2019-2024.12Figure 3.Gabon:Demand-side contribution to real GDP growth(in percent),2019-2024.12Figure 4.Evolution of GDP per capita and poverty rate(USD6.85/day in 2017 PPP).13Figure 5.Evolution of social spending,as percent of total budget.13Figure 6.Number of enterprises identified in Gabon by number of employees.14Figure 7.Distribution of private sector job opportunities by sector .14Figure 8.Distribution of skilled staff in public vocational training centers by sector.14Figure 9.Inflation(monthly,y-o-y,in percent),January 2020-December 2024.15Figure 10.Recent evolution of Gabons trade position,percent of GDP.17Figure 11.Recent evolution of Gabons exports and composition of the 2024 export basket.17Figure 12.Top destinations for Gabonese exports,2024.18Figure 13.Recent evolution of Gabons imports and composition of 2024 imports.18Figure 14.Composition of fiscal revenue,CFAF millions .20Figure 15.Shares of oil and non-oil sectors contributions to the corporate income tax .20Figure 16.Tax collection performance(tax revenues as a%of total government revenues).20Figure 17.Evolution of tax expenditure,CFAF billions .20Figure 18.Composition of public expenditure,CFAF millions .21Figure 19.Evolution of the fiscal balance,percent of GDP.21Figure 20.Evolution of public debt,percent of GDP.22Figure 21.Stock of external debt arrears,percent of GDP.22Figure 22.Evolution of the debt-to-GDP ratio,percent .23Figure 23.Composition of public debt,CFAF millions .24Figure 24.Distribution of public debt,percent of total debt.24Figure B1.Redemption profile of the public debt portfolio at end-2024,CFAF billions.26Figure 25.Burden of debt service on public finances,percent of total fiscal revenues .27Figure 26.Evolution of the Gabonese government securities yield curve,percent.27Figure 27.Credit to the economy,CFAF millions .28Figure 28.CEMAC countries yield curve in 2020 and 2024 .29Figure 29.Evolution of the spread on Gabons and Africas Eurobonds.29Figure 30.Commodity price prospects,USD .30Figure 31.Global and regional growth prospects,percent.30Figure 32.Commodity production in Gabon(2020-2027).31Figure 33.Structure of wealth accounts.38Figure 34.Evolution and composition of wealth in Sub-Saharan Africa.39iiiFigure 35.National and per capita wealth evolution in Gabon.41Figure 36.Cumulative GDP per capita growth vs.cumulative wealth per capita growth,1995-2020.42Figure 37.Produced capital per capita and GFCF,Gabon,peers and regions.43Figure 38.Human capital wealth in Gabon and peer countries.44Figure 39.Nonrenewable natural capital in Gabon and peer countries.46Figure 40.Renewable natural capital in Gabon and peer countries.47Figure 41.Deforestation rate in Gabon and selected countries in the Congo Basin,percentage of forested area .49Figure 42.Change in ecosystems extent,in thousand hectares,between 2000,2010 and 2020.50Figure 43.Forest concessions and protected areas in Gabon,2020.50Figure 44.Export values and volumes,2000 vs.2020.52Figure 45.Adjusted Net Savings,percent of gross national savings.58TABLESTable 1.Selected macroeconomic and fiscal indicators .11Table 2.Criteria and calculation of risk weights applied to banks exposure to CEMAC Member States.23Table 3.Cost and risk profile of public debt at end-2024.25Table 4.Average maturity of Gabons public debt portfolio.25Table 5.Gabons medium-term outlook:selected economic indicators.33Table 6.Structural development indicators in Gabon.35Table 7.Health and education outcomes in Gabon and peer countries.45Table 8.Major drivers of forest use and degradation in Gabon.52Table 9.Physical and monetary values of forest ecosystem services in Gabon.55Table 10.Adjusted Net Savings(ANS)and Adjusted Net Income(ANNI)calculations.57Table 11.Policy options to build and preserve Gabons national wealth.66BOXESBox 1.Active public debt management operations launched by the Gabonese Authorities during the political transition.26Box 2.SOE portfolio expansion and continued governance challenges.32Box 3.Estimating the values of carbon retention services and forest assets.54Box 4.How can countries avoid being left with stranded assets in an evolving global environment?.61Box 5.The third way-a strategic approach to agriculture in highly forested nations .63Box 6.Developing forest-based tourism:the case of Rwanda.64ivAcknowledgmentsThe 2025 edition of the Gabon Economic Update was prepared by a World Bank team co-led by Sonia Barbara Ondo Ndong(Senior Economist,EAWM2)and Erick Tjong(Economist,EAWM2),consisting of Chris Belmert Katindi Milindi(Extended Term Consultant,EAWM2)and Ryan Milan(Governance Specialist,EGVPI),with contributions from Dr.Sugandha Srivastav(Lecturer in Environmental Economics and Senior Research Associate at the University of Oxford),under the supervision of Robert Utz(Lead Economist,EAWM2).The report benefited from guidance and comments from Cheick Fantamady Kante(Country Director,AWCC1);Sandeep Mahajan(Practice Manager,EAWM2);Genevive Boyreau(Program Leader,EAWDR);and Aissatou Diallo(Resident Representative).Pinar Baydar(Operations Analyst,EAWM2);Ifeoma Clementina(Team Assistant,EAWM2);Celeste Martiale Migan Boukandou Epse Tesse(Program Assistant,AWMGA);and Irene Sitienei(Program Assistant,EAWM2)supported the team during the preparation of the report.The team is thankful to the peer reviewers Kanta Kumari Rigaud(Lead Climate Change Specialist,SAWE1),James Cust(Senior Economist,AFECE),and Kevin Carey(Program Manager,EFICT)for their constructive contributions.The team gratefully acknowledges the collaboration of the Government of Gabon throughout the preparation of this report.vAbbreviations and AcronymsAfDB African Development BankANNI Adjusted net national incomeANS Adjusted net savingsBEAC Bank of Central African States(Banque des tats de lAfrique Centrale)bbl oil barrelCAR Central African RepublicCAFI Central African Forest InitiativeCEMAC Central African Economic and Monetary Community (Communaut conomique et montaire de lAfrique centrale)CFAF African Financial Community Franc(Franc CFA)CIT Corporate income taxCO2 Carbon dioxideCOBAC Central African Banking Commission(Commission bancaire de lAfrique centrale)CWON Changing Wealth of NationsDRC Democratic Republic of CongoEITI Extractive Industries Transparency InitiativeFDI Foreign Direct InvestmentGDP Gross Domestic Product GFCF Gross fixed capital formationGNI Gross National IncomeHCI Human Capital IndexHIC High income countriesICT Information and communication technologiesILO International Labor OrganizationIMF International Monetary FundITTO International Tropical Timber OrganizationLMIC Lower middle income countriesNDC Nationally Determined ContributionsND-GAIN Notre Dame Global Adaptation InitiativeOECD Organisation for Economic Co-operation and DevelopmentOPEC Organization of Petroleum Exporting CountriesPIMA Public investment management assessmentPNDT National Transition Development Plan(Plan National de Dveloppement de la Transition)PPP Purchasing power parityPSGE Emerging Gabon Strategic Plan(Plan Stratgique Gabon mergent)viREDD Reducing Emissions from Deforestation and Forest Degradation in Developing CountriesSME Small and medium enterprisesSOE State-owned enterprisesSSA Sub-Saharan AfricaUN United NationsUSD United States dollarUMIC Upper middle income countriesVAT Value-added taxWB World BankWDI World Development IndicatorsWGI World Governance Indicatorsy-o-y Year-on-year1OverviewOGabons GDP growth accelerated in 2024,but the country continues to face challenges to create more jobs and reduce povertyEconomic growth in Gabon accelerated to an estimated 2.9 percent in 2024,up from 2.4 percent in the previous year,thanks to the oil sector and accelerating public works.Oil out-put grew by an estimated 4.6 percent in 2024,due to the exploitation of new oilfields,lower OPEC quantity restrictions,sustained global demand,and relatively few operational issues.The services and construction sectors also con-tributed to growth,benefiting from significant in-vestments in large public works and government projects,from public buildings to roads,power and water,and other infrastructure being built and renovated throughout the country.However,the wood and manganese sectors,Gabons main exports besides oil,continued to suffer from subdued demand and structural infrastruc-ture problems,such as railway disruptions,inad-equate roads,and frequent power outages.The Gabon Economic Update is an annual World Bank publication that presents an overview of the evolving macroeconomic position in Gabon,followed by a detailed exploration of a specific topic.The first chapter analyzes recent economic developments,key development challenges,and outlook and risks for Gabons future growth.It presents policies to help the country create more jobs,build resilient growth,and strengthen public finances.The second chapter discusses measurements of national wealth and links with indicators such as Gross Domestic Product.It analyzes the role of human,physical,and natural capital in shaping long-term development in Gabon,with a focus on forest ecosystem services accounts,providing insights on how to make the best sustainable use and benefit the most from the countrys vast forest resources.This report is based on data available as of May 2025.2Limited employment opportunities and insufficient growth have caused an increase in poverty in re-cent years,with more than a third of Gabonese living in poverty.Gabons growth was modest since the COVID-19 pandemic,averaging 2.0 percent be-tween 2019 and 2024,and was centered in capital-in-tensive oil and mining industries.This growth did not create enough jobs,as many youth enter the labor market every year.Unemployment affects about 20 percent of the workforce.In view of lack of jobs,mod-est growth,and limited social spending,34.6 percent of Gabonese were estimated to live in poverty,with less than USD6.85 per day in PPP in 2024.Initiatives are being taken to confront this problem,with invest-ments in training centers,SME credit,and entrepre-neurship,but stronger reforms are needed to create better conditions for private firms to thrive and hire more workers.Inflation continued to decline over 2024,amid a tightened monetary policy adopted by the region-al central bank,stronger price controls,and de-clining global inflation.Inflation stood at 0.9 percent in December 2024(year-on-year),continuing on a downward path since its peak at nearly 6.0 percent in late 2022.With signs of decreasing inflation across CEMAC,the BEAC gradually started to loosen mon-etary policy in early 2025.While providing relief for households,tax exemptions are costly for the coun-try,inefficiently targeted,and unable to address the underlying causes of the high cost of living,which are high trade and production costs due to logistical gaps,high tariffs,and costly energy and transportation.Gabons strong commodity exports allowed it to maintain a high trade surplus in 2024,but it re-mains highly dependent on a few products,with 97 percent of exports consisting in oil,manga-nese,and wood.The trade surplus remained high at an estimated 36.2 percent of GDP in 2024.Gabons exports benefited from higher oil production and sus-tained prices for most commodities,increasing by an estimated 6.6 percent.Meanwhile,nominal imports increased by an estimated 14.1 percent in 2024,as higher public spending and social measures that in-creased demand for imports.Lower oil revenues,high borrowing costs and an expansionary spending policy are aggravating fiscal and debt sustainability risksLower oil revenues and an expansionary spending policy caused a deterioration of the fiscal position in 2024,increasing fiscal risks and liquidity pressures.Boosted by tax digitalization efforts,public revenues remained stable in 2024 despite a decline in global oil prices.The launch of Digitax,a new online tax fil-ing platform,and the connection of customs offices at the Northern border with Sydonia World allowed reve-Photo credit:3nue collection to exceed budget projections.However,public spending increased by about 24 percent,with a sharp rise in investments in infrastructure and so-cial measures like fuel subsidies and scholarships.As a result,the fiscal balance deteriorated sharply to an estimated-3.7 percent of GDP in 2024,down from a 1.8-percent surplus in 2023,bringing the non-oil prima-ry balance to-15.9 percent in 2024.Spending needs were financed with state borrow-ing on the regional financial market,with the pub-lic debt increasing to an estimated 72.5 percent of GDP in 2024,up from 70.6 percent in 2023.However,Gabons credit rating downgrading by Fitch and Moodys in June 2024 and the imposition of a high-er risk weight by COBAC in October,limiting banks capacity to participate in bond issuances,impacted financing goals,leading to a build-up in external ar-rears.Gabons public debt has been increasing since 2021,following an expansionary spending policy but also due to the additional debt components identi-fied thanks to higher transparency since 2023,such as unpaid budgetary commitments,VAT refund and salary arrears.Along with higher spending pressures and borrowing costs,this brought public debt above the CEMACs 70-percent convergence target.Faced with higher interest rates and a costly debt service,Gabon has taken actions to more actively manage public debt,carrying out early buy-back operations of its June 2025 Eurobond in late 2024 and early 2025,and reprofiling a large part of domestic debt in April.Gabons growth outlook remains exposed to a highly uncertain global environmentGabon is projected to grow by about 2.4 percent over 2025 to 2027,driven by mining,wood,and agricultural sectors,but in the absence of strong economic reforms growth would be insufficient for meaningful poverty reduction.The oil sector faces challenges such as maturing oilfields,lower prices,and lower demand as key trading partners are affect-ed by recent global disruptions.Yet,vast manganese,iron ore,timber,and agricultural resources offer a great economic potential.With a newly elected gov-ernment in power,political uncertainty should decline as the country completes its move from a transition to constitutional order,improving investor confidence.However,strong fiscal consolidation policies are needed to attract more investments and provide reas-surances that high fiscal and financing pressures and debt risks are addressed.The highly uncertain global environment dims Gabons outlook,with its growth,trade,and fis-cal outlook vulnerable to shocks coming from the evolving global context.Countries face rising trade restrictions,trade wars,and multiple geopolit-ical tensions and regional conflicts that can escalate quickly.The currently challenging fiscal position could be affected by further decreases in oil prices.Also,global inflationary surges could drive up living costs and reduce consumption,whereas liquidity pressures,which are already high,could be aggravated by tighter financing conditions.Greater challenges in mobilizing financing could result in further accumulation of ar-rears or cuts in public investments,affecting growth.As it navigates through a changing global situation,to minimize risks Gabon should accelerate reforms to build a solid foundation for higher growth and job creation.In a context requiring cuts in public invest-ments and public consumption,it would be essential to prioritize the most urgent,efficient,and productive public spending,from an economic and social point of view.To address development needs while securing a viable fiscal path,Gabon should protect the econ-omy and especially the most vulnerable while ensur-ing sustainable public finances through strong fiscal consolidation.Special topic:Measuring Gabons wealth and ensuring a sustainable and prosperous future Measures of a nations wealth are an important complement to GDP,providing insights into the capital foundation for future growth and its sus-tainability.Assessing the evolution of the level and composition of national wealth allows policymakers to better understand an economys capacity to gener-ate future incomes and sustain development.National wealth assessments,including key components such as forest ecosystem services,can help inform devel-opment strategies,budget discussions,and dialogue with civil society,the private sector,and development partners.Ideally,a sustainable situation would be of a resilient growth and wealth accumulation balancing natural,human,and produced capital,where both GDP per capita and wealth per capita would increase,indicating growth without a depletion of wealth.4Gabons national wealth increased by 35 percent between 1995 and 2020,or by 1.4 percent per year,reaching USD105 billion in 2020(in real chained 2019 USD).It is dominated by natural capital(42 per-cent of total wealth),followed by human(31 percent)and physical capital(27 percent).Over this period,the value of Gabons renewable natural assets grew by 2 percent,nonrenewable natural capital,by 39 percent,produced capital by 85 percent,and human capital,by 207 percent.Between 2009 and 2016,supported by an oil boom,investments were made in infrastruc-ture and social areas.Meanwhile,Gabon had a strong increase in nonrenewable natural wealth,thanks to vast hydrocarbon reserves,peaking at around 380 million tons in the 1990s,while strong conservation efforts allowed it to increase forests value and create a sustainable local timber industry.At the same time,Gabon had a significant decline in per capita wealth,by 34.7 percent from 1995 to 2020,or-1.39 percent every year,indicating chal-lenges in converting its rich natural resources into productive assets and human capital.While Gabon experienced rapid population growth,inadequate in-frastructure,governance challenges,and a dominant public sector hindered private sector development and job creation,contributing to a decrease in per capita wealth.Logistical gaps remain a major obstacle due to inadequate and costly access to transportation and energy.Public investment remained volatile,closely linked to oil cycles,and hampered by management and planning deficiencies,causing produced capital per capita to decline by 10 percent from 1995 to 2020.Due to population growth and depletion of finite extractive resources,nonrenewable natural capital per capita de-clined by 33 percent,whereas renewable natural assets per capita declined by 51 percent.Human capital per capita increased by 49 percent,but key education and health indicators remained lower than in countries with similar incomes,hindered by low social spending and efficiency and allocation issues.Gabon is among the few countries that experi-enced both negative GDP growth and a decline in per capita wealth from 1995 to 2020,reflecting an erosion of its asset base and economic output.As Gabon was not able to fully seize the opportunity of its vast natural resources to diversify its productive base,growth has been modest and volatile,mainly reflect-ing oil cycles.Policy challenges include redistribut-ing and efficiently using oil revenues,expanding and maintaining infrastructure and leveraging the tourism Photo credit:5potential of forests.Governance and public finance management challenges resulted in limited invest-ment efficiency and inadequate logistic infrastructure,undermining growth,investment,and job creation.The evolution of national wealth can be analyzed using Adjusted Net Savings(ANS),providing a broader picture of a nations economic sustain-ability and ability to invest in its future.ANS is mea-sured as gross national savings(or gross investment,given the savings-investment identity)minus depreci-ation of produced capital,depletion of subsoil assets(fossil fuels and minerals)and timber resources,and air pollution damages to human health,plus a credit for expenditures on education.Gabons Adjusted Net Savings was negative at-3 percent in 2020,indicating that it was depleting wealth faster than it was accu-mulating new assets,due to lower savings and invest-ment following the 2014 oil price shock.Institutional policies are thus needed to shield the budget from oil cycles,enabling the country to build fiscal buffers and stabilize investments,and also to promote a higher rate of savings and investment over the long term.Thanks to extensive and well-preserved forests,Gabon is one of the worlds few net carbon sinks.Gabons forests are well-preserved,thanks to sustain-able forestry policies,high urbanization,and low pop-ulation density.They are crucial for climate mitigation,absorbing vast quantities of carbon and storing it in biomass and soils.Its forests are estimated to have retained 8,000 million tons of carbon in 2020,equiva-lent to 29.8 billion tons of CO2.Yet,neglecting forests economic contributions in economic and fiscal plan-ning could raise risks of overuse,underinvestment in conservation,and distortions in development planning.Gabon has maintained strong forest coverage,with well-preserved forest conditions and biodiversity.Overall deforestation rates,at around 0.6 percent per year in 2000-2020,remained low compared to region-al peers.The average regional deforestation rate was three times higher during this period.Yet,degradation was stronger in certain specific locations.Pressures from logging,agriculture,and infrastructure develop-ment are intensifying,especially along transport and economic corridors.Human-modified areas like crops and build-up areas are still considerably small,having expanded from 0.7 percent of the territory in 2000 to 1.3 percent in 2020.At the same time,Gabon lost 0.6 percent of its forests,from 90.8 percent of the territory in 2000 to 90.2 percent in 2020.Photo credit:6The total value of forest ecosystem services in Gabon nearly doubled from CFAF22.6 tril-lion(USD39.4 billion)in 2000 to CFAF43.2 trillion(USD75.1 billion)in 2020.A new World Bank study recently assessed the value of Gabons forest ecosys-tem accounts,indicating that over 99 percent of the monetary value of such services consisted in carbon retention,estimated at USD74.7 billion,equal to over a quarter of total national wealth and over three times Gabons GDP.The value of this key service,however,is largely not captured by the country,representing a massive economic loss.First,this value is estimated based on the social cost of carbon(the cost of climate change damages avoided thanks to carbon retention),which is different from the typically lower market values obtained in carbon markets.In addition,underdevel-oped global carbon markets and institutional challeng-es hinder countries capacity to monetize these values.Forest ecosystems also provide important eco-nomic value in the form of wood resources,bush-meat,wild plants,soil retention,and ecotourism.Thanks to diversification policies,Gabons timber sec-tor generates significant revenues and employment,with timber extraction valued at USD157 million in 2020,even if its environmental impact is minimized.Between 2000 and 2020,wood export volumes de-creased by 56 percent,but their values were stable,thanks to the near elimination of log exports and substantial increase in processed wood exports.Yet,most exports consist in primary processing goods,in-dicating challenges to advance into higher processing levels such as furniture.Wood is also used by local populations for construction poles and as fuel,and forests are an important provider of wild non-wood resources such as bushmeat,wild food plants,which are significant to sustain local livelihoods.Forests are also crucial for soil and sediment retention,which,valued at USD183 million in 2020,contributes to erosion control and water quality.Trees anchor soil and absorb rainfall,reducing costs associated with erosion,such as dredging and shortening reservoir lifespans,impacting hydropower and drinking water quality.Ecotourism also benefits from forests,but the value generated by tourism,at nearly USD22 million in 2020,has been declining,amid infrastructure gaps and other challenges.Strong structural reforms are urgently needed to reverse the worrying trend of declining per capi-ta wealth and set Gabon on a higher development path.If current trends continue,Gabon would keep losing national wealth per person,disposing of few-er assets and resources to generate incomes for its people.The decline in per capita wealth highlights the need to ensure a more efficient management of oil revenues and other natural resources.Governance reforms are key also for a stronger build-up of infra-structure and human capital.Setting clear timelines,performance indicators,and accountability can help improve spending efficiency.Investment needs to be aligned with fiscal space to enable essential public services.Also,Gabon needs to increase,improve,and better target public spending on education,skills and healthcare.Health,education and jobs are pri-orities for the new government,but social spending remains low compared to peer countries.It is key to focus on primary education and teacher quality,better align training with job opportunities,and better target spending on health.To manage and utilize extractive revenues more effectively,a strategic approach is necessary to ensure that natural resources contribute more to sustainable growth and diversification.Even if oil resources may be finite,they remain central for Gabon.Mineral resources,including manganese and iron ore,are another enormous source of wealth.As Gabon was recently readmitted into the Extractive Industries Transparency Initiative(EITI)in early 2025,it will be key to implement EITI recommendations and ensure transparent management of this crucial natu-ral wealth.Also,strategies need to adjust to evolving global conditions,to avoid leaving stranded assets like natural resources and infrastructure serving these sectors.To make the most of its resources,structural re-forms improving the business climate are needed to promote wood,mineral and food processing,as well as ecotourism and sustainable agriculture.The expansion of infrastructure,agriculture,and for-estry are necessary for higher growth but would im-ply some reduction in natural capital.To minimize the environmental impact of growth and preserve natural wealth,policies could focus on promoting more local value added,to make the most of current resources.To increase local transformation,firms need condu-cive business conditions,notably with quality energy and transportation.Sustainable agriculture also offers 7great potential,as forest preservation and agriculture promotion is not a zero-sum situation.Many crops yields are stagnant and lower in Gabon than in the re-gion,suggesting options to improve productivity with sustainable agriculture and agroforestry,which enjoys forests benefits like improved soil,erosion prevention,local climate regulation,and higher prices from certifi-cation labels.Ecotourism and other forest-based sec-tors like knowledge activities around medicinal plants can also reveal enormous opportunities to generate more incomes and jobs for the Gabonese.Finally,Gabon and other-densely forested coun-tries need a sizable and well-functioning global financing system to be able to transform carbon retention services into tangible benefits.Estimating the value of carbon retention services is a first step,that allows policymakers,civil society,and the general public to quantify and target a necessary compensa-tion.But despite the growth of climate funds and oth-er green financing initiatives in recent years,including the UN-led Central African Forest Initiative(CAFI)s support to Gabon,a compensation mechanism capa-ble of achieving climate goals is still an aspiration.It is thus crucial for the international community to put in place fair,concrete,and adequate means to re-ward,compensate,and support countries like Gabon for their efforts to preserve forests.Options to help Gabon achieve a fairer share of benefits from carbon retention services include engaging in stronger glob-al negotiations to develop fairer REDD mechanisms,stronger cooperation and financial support to tackle climate change,and considering nature-based sov-ereign financing tools such as sustainability-linked bonds.1 Domestically,it is important to maintain and update data on forest ecosystem services,strengthen legal frameworks,engage more strongly with civil so-ciety and firms in sustainable forest management,and design fiscal policies to maximize revenue generation and job creation based on sustainable economies.1 Climate financing options are discussed in the upcoming Gabon Country Climate and Development Report(CCDR).Photo credit:8Recent Economic Trends and Outlook for Gabon1I.Global and regional growth remains below pre-pandemic levels and vulnerable to a highly uncertain context Global growth stabilized in 2024 as inflation-ary pressures further eased,and incipient loosening of monetary policy helped sup-port economic activity.The global economy is estimated to have grown by about 2.8 per-cent in 2024,same as in 2023.Inflation has been on a downward trend,reflecting falling food and energy prices and lagged impacts of monetary tightening,being brought at or be-low targets in over 60 percent of economies in 2024.Monetary policy easing has become widespread,leading to a slight easing of glob-al financial conditions since mid-2024.Yet,investor sentiment toward emerging markets remained unstable,and non-concessional borrowing remained costly due to high bond 2 World Bank.2025.Global Economic Prospects.June.yields in advanced economies,compared to the 2010s.Global trade recovered in 2024,with an estimated growth of 3.4 percent.The global economy seems to be settling into a relatively slow and uneven growth,not enough to sup-port sustained inclusive development.Global growth,trade,and investment are all below the pre-pandemic averages observed in 2010-2019 and remain insufficient to counter the damage from the multiple shocks affecting the world since the COVID-19 pandemic.2Economic activities in Sub-Saharan Africa(SSA)expanded in 2024,with higher growth compared to the previous year,but still in-sufficient to drive significant poverty reduc-tion.SSAs GDP growth increased from 2.9 percent in 2023 to an estimated 3.5 percent in 2024.Growth improved in the regions largest economies,supported by higher oil produc-tion in Nigeria and improved electricity supply 9in South Africa.The drop in energy and metal prices from their 2022 peaks has required fiscal adjustments in several commodity-exporting economies,under-mining growth,particularly among metal exporters.Overall,growth in SSA remains modest and uneven,and unable to generate sufficient jobs and poverty re-duction.Due to low growth,fast population growth,lingering effects of inflation and underinvestment,poverty continues to rise,in a region that faces the highest extreme poverty rate in the world,home to 80 percent of the worlds 612 million extreme poor.3Growth in the Economic and Monetary Community of Central Africa(CEMAC)reached an estimated 3.0 percent in 2024,up from 2.0 percent in 2023.Cameroon and Chad exhibited the strongest growth performances,registering 3.5 and 3.7 percent growth,primarily driven by increased cocoa and cotton ex-ports in Cameroon,and non-oil sectors in Chad.The Republic of Congo registered modest growth of 2.6 percent,with a 3.9 percent increase in non-oil sectors partially offset by a decline in oil production due to technical issues.Meanwhile,growth in CAR improved from 0.7 percent in 2023 to 1.5 percent in 2024,ben-efiting from enhanced fuel and electricity supplies and signs of recovery in the agro-processing,telecom,and retail sectors.The Equatoguinean economy,following a significant contraction of 5.1 percent in 2023,is es-timated to have modestly recovered in 2024 with a 0.9-percent growth,driven by a rebound in hydrocar-bons.In per capita terms,income growth in CEMAC is estimated to have increased to 0.2 percent in 2024(up from-0.8 percent in 2023).CEMACs trade and fiscal positions deteriorated in 2024,as CEMAC continues to be heavily influ-enced by fluctuations in oil prices.Due to lower oil prices,reduced commodity revenues,and high spending pressures,CEMACs average fiscal balance is estimated to have shifted to a deficit of-1.5 percent of GDP in 2024,compared to a 0.6 percent surplus in 2023.The public debt remains elevated in countries such as Congo(93.5 percent)and Gabon(72.5 per-cent),surpassing the regional convergence criterion of 70 percent of GDP.Tax collection,fiscal space and li-3 World Bank.2025.Africa Pulse.Extreme poverty is based on estimates of the share of households living under$2.15 per day,in 2017 PPP.4 Choudhary,Rishabh;Ruch,Franz U;Skrok,Emilia.2024.Taxing for Growth:Revisiting the 15 Percent Threshold.Policy Research Work-ing Paper 10943.Washington,DC:World Bank.5 World Bank.2025.CEMAC Economic Barometer.June edition.quidity remain constrained within CEMAC,limiting op-tions to manage further shocks.Tax revenues remain,on average,below 15 percent of GDP,which research indicates to be the usually recommended threshold to support basic public services.4 Meanwhile,the trade balance registered a slight decrease from 8.9 percent of GDP in 2023 to 8.6 percent in 2024.Overall,the region maintains trade and current account surplus-es,largely supported by strong commodity exports.At the same time,a high vulnerability to volatile com-modity prices is evidenced by the impacts of declin-ing oil prices.Between 2022 and 2024,as oil prices declined from about USD100 to 80,CEMACs current account balance decreased from 7.5 percent of GDP to 4.0 percent of GDP,translating into a drop in foreign reserves,from 5.2 months of import coverage in 2022 to 4.6 months in 2024.5Encouraged by declining inflation,the Bank of Central African States(Banque des tats de lAf-rique Centrale,BEAC)began easing its monetary policy in March 2025.Inflation in the CEMAC zone continued its downward trend,reaching 4.0 percent in December 2024,compared to 4.5 percent a year earlier,due to the recovery of global supply chains,easing energy and food prices,and a tight monetary policy.Preliminary data from early 2025 indicate that this downward trend may persist throughout the year,although regional inflation still exceeds the conver-gence criterion of 3 percent and faces risks in view of the changing global trade and financial conditions.In this context,for the first time since late 2021,the BEAC lowered its key policy rate from 5.00 percent to 4.50 percent in March 2025.Also,the marginal lending facility rate,which is the interest charged on overnight loans granted by the BEAC to commercial banks,was reduced from 6.75 percent to 6.00 percent,as part of an effort to lower refinancing costs,improve access to credit,and encourage investment.10II.Growth accelerated in 2024 but remained constrained by structural challengesEconomic growth in Gabon accelerated to an es-timated 2.9 percent in 2024,up from 2.4 percent in the previous year,thanks to the oil sector and accelerating public works.Oil remains central to the Gabonese economy.Oil output grew by an esti-mated 4.6 percent in 2024,to around 11 million tons(Figure 1 and Table 1),due to the exploitation of new oilfields,lower OPEC quantity restrictions,sustained global demand,and relatively few operational issues.The services and construction sectors also contribut-ed to growth,benefiting from significant investments in large public works and government projects,from public buildings to roads,power and water,and oth-er infrastructure being built and renovated throughout the country.Construction grew by about 15 percent in 2024.Demand from public works also benefited painting( 33 percent)and cement( 18 percent)pro-duction,and the services sectors( 5 percent).6The wood and manganese sectors,Gabons main exports besides oil,continued to suffer from structural problems such as gaps in transport in-frastructure.Manganese output decreased by an 6 World Bank.2025.Macro Poverty Outlook.April;Government of Gabon.2025.Note de Conjoncture Sectorielle.March.7 Government of Gabon.2025.Note de Conjoncture Sectorielle.March.estimated 5.8 percent in 2024(Figure 2).Subdued demand from China led the largest mining firm,the Compagnie Minire de lOgoou(Comilog),to halt production for three weeks.Railway disruptions also impacted transport and production capacity.Timber production decreased in 2024,by an estimated 5.2 percent,also impacted by lower Chinese demand and transportation challenges.7 Log transportation by road was affected by the rainy season in late 2024,and by the lack of train cars.Insufficient railway capacity has been a long-term challenge,especially for logs.Gabons single railway,a key transport line for wood,manganese,and passengers,is managed by the Socit dExploitation du Transgabonais(SETRAG),a subsidiary of Comilog.In 2023 both wood and man-ganese had seen a weak performance due to railway disruptions caused by inclement weather.To help ad-dress this challenge,SETRAG is investing in railway transport capacity,with support from IFC,the World Banks entity dedicated to the private sector.The wood and agro-industries endured frequent power cuts,which impacted overall economic ac-tivity over 2024 and early 2025.Long-term under-investment in the power sector has been affecting power reliability,impacting industries such as wood and food processing,which grew by,respectively,an Figure 1.Oil and non-oil GDP growth and share of oil and non-oil GDPSources:Gabonese authorities and World Bank staff calculations.Preliminary data for 2024;World Bank projections for 2025.15201920202021202220232024e 2025f1050-5-10Real GDPNon-Oil GDPAnnual change(percent)Oil GDP100201920202021202220232024e 2025f806040200Non-Oil GDPShare of GDP(percent)Oil GDP11estimated zero and-5.5 percent in 2024.Increasing outages have broader social and economic impacts,hindering productivity and affecting living conditions.In early 2025,the authorities were able to partially ad-dress the issue with the purchase of electricity from Equatorial Guinea and from a ship-based generator provided by the Turkish company Karpowership,al-though at high costs.Meanwhile,agriculture also per-formed poorly in 2024,with an estimated 9.5-percent decrease in oil palm production,affected by insuffi-cient rain in the Ngouni province and the devastation of plantations by elephants human-wildlife conflicts 8 Government of Gabon.2025.Note de Conjoncture Sectorielle.March.are another long-term issue for the country.In con-trast,rubber production increased by about 23 per-cent,thanks to expanding plantations by the multi-national group Olam and the states investment in the Agro Business Group,allowing it to settle previous labor disputes and expand production.8On the demand side,growth was largely driven by oil exports and by public investments,thanks to the launch of several major projects by the tran-sition government.Large public works continued as part of the authorities goal of delivering tangible infra-Table 1.Selected macroeconomic and fiscal indicators Key macroeconomic indicators20202021202220232024e2025fAnnual%change,unless indicated otherwiseReal GDP growth-1.81.53.02.42.92.1Per capita GDP(USD,nominal)6,6718,1028,5178,0228,3677,675Inflation1.61.14.33.72.42.3Oil sector-1.2-6.73.37.64.6-2.1Agriculture and forestry4.819.29.7-2.0-1.37.3Mining and non-oil industries-3.08.93.41.9-1.93.4Services-2.51.32.42.65.01.5Private consumption-2.0-1.4-0.32.12.6-0.8Public consumption5.53.23.81.54.54.8Gross fixed capital formation-16.712.78.46.26.9-4.3Exports,goods and services10.012.812.9-2.54.00.0Imports,goods and services-6.017.412.51.36.8-5.1Percent of GDP,unless indicated otherwiseGovernment revenues 17.615.321.124.623.724.3Public expenditures 19.717.221.922.827.429.7Fiscal balance-2.1-1.9-0.81.8-3.7-5.4Primary balance 1.20.91.84.8-0.6-1.8Public debt 78.268.557.070.672.580.2Current account balance 20.727.334.428.530.717.9Trade balance 24.933.543.137.336.226.3Net FDI inflows0.72.21.61.81.61.6MemoTotal population(millions)2.32.42.42.52.52.6Nominal GDP(CFAF billions)8,83110,78312,75012,16512,59311,928Nominal GDP(USD millions)15,34219,44520,44120,05620,91719,954Sources:WDI,BEAC,Gabonese authorities and World Bank staff calculations.Note:e=estimate;f=forecast.12structure improvements,increasing public investment by over 10 percent in 2024(Figure 3).National and urban roads are being expanded and renovated,pow-er and water networks extended,and schools,health clinics,and social housing being built.Coupled with an increase in civil service hiring,this increased de-mand and household incomes.As a result,2024 saw an increase in both public and private consumption,while a stronger production and sustained global de-mand for oil allowed the volume of oil exports to in-crease by about 2 percent in 2024.III.Creating jobs remains a key pathway for poverty reduction Limited employment opportunities and insuffi-cient growth have caused a sustained increase in poverty in recent years,with more than a third of Gabonese living in poverty.The modest growth in Gabon since the Covid pandemic,averaging 2.0 per-cent between 2019 and 2024,did not create enough jobs for the young population,as many youth enter 9 World Bank.2025.Macro Poverty Outlook.April.the labor market every year.Gabon struggles with long-term unemployment,at about 20 percent of the workforce.9 Concentrated in capital-intensive oil and mining industries,growth is not job-rich,preventing more people from escaping poverty.As a result,the poverty rate(measured as the share of households living on less than$6.85 per day,in 2017 purchas-ing power parity,or PPP)has increased since 2022,reaching 34.6 percent of Gabonese in 2024(Figure 4).Poverty is aggravated by limited social spending,reducing the states capacity to build human capi-tal effectively and protect the most vulnerable from shocks.The budget allocated to social spending has steadily decreased since 2020,representing only 18.2 percent of the revised budget for 2024(Figure 5).Weaknesses in public procurement,investment,and budget processes and management limit an effec-tive and timely execution,hindering the achievement of social goals.Public spending on non-contributory social assistance such as cash transfer programs is even more inadequate:Gabon spends about 0.2 per-Figure 2.Gabon:Supply-side contribution to real GDP growth(in percent),2019-2024Figure 3.Gabon:Demand-side contribution to real GDP growth(in percent),2019-2024Sources:Gabonese authorities and World Bank staff calculations.Preliminary data for 2024;World Bank projections for 2025.6.0201920202021202220232024e 2025f4.02.00.0-2.0-4.0ServicesContribution to growthOilAgriculture and forestryIndustry and mining20.0201920202021202220232024e 2025f15.010.05.00.0-5.0-10.0-15.0Contribution to growthChange in inventoryStatistical discrepancyNet exportsGross fxed capital formationGovernment consumptionPrivate consumptionGDP growth13cent of GDP on non-contributory social assistance,four times lower than the average upper-middle in-come country.10 In view of the difficulties to set up social protection programs,such as the lack of an updated and comprehensive social registry,different alternatives are used to attenuate living costs,such as fuel and wheat subsidies,tax exemptions,and schol-arships.While providing relief to households,these broad measures come at high fiscal costs and have a limited ability to target vulnerable citizens.To expand the sources of growth and job creation,the authorities have embarked on economic di-versification policies focusing notably on wood,mining,and agriculture,yet with limited results.As a result of these efforts,the forestry sector has be-come the largest private employer.However,private sector development is still limited by several obsta-cles,such as limited access to water and electricity,weak property rights and contract enforcement,and mismatches between available and required labor skills.Out of all companies identified in the 2019 gen-eral enterprise census,about 49 percent had fewer than 30 employees,underscoring the limited capacity of the Gabonese private sector to create jobs for a fast-growing population(Figure 6).Thus,the public 10 World Bank.2022.Gabon:Country Economic Memorandum.sector remains a primary provider of jobs,compris-ing 97,986 permanent employees in 2024,a minor in-crease compared to 2023.Initiatives are being taken to foster entrepreneur-ship and job creation,particularly among the youth,yet many obstacles persist,such as strong labor skills mismatches.Recent measures taken to encourage entrepreneurship include the reduction of business registration fees and the creation of the Banque pour le Commerce et lEntrepreneuriat du Gabon(BCEG),a public guarantee bank,to facili-tate access to credit for SMEs.Efforts are also on-going to promote access to vehicles for taxi drivers and facilitate artisanal mining and agricultural activ-ities.However,the results of such measures are yet to be seen.Moreover,labor skills mismatches prevent young people from seizing the relatively few job op-portunities available in the private sector.These are notably provided by services,followed by the wood and transport sectors(Figure 7).Yet,access to an ad-equately trained workforce is a challenge.Although about one third of the youth is unemployed,certain job posts still go unfilled due to the lack of corresponding skills.As of mid-2023,over 10 percent of the 669 jobs offered at employment agencies went unfilled,despite Figure 4.Evolution of GDP per capita and poverty rate(USD6.85/day in 2017 PPP)Figure 5.Evolution of social spending,as percent of total budgetSources:World Bank staff calculations and Government of Gabon.Preliminary data for 2024;World Bank projections for 2025.2,5602019 2020 2021 2022 2023 2024e 2025f2,5402,5002,4602,4802,5202,4202,4002,3802,3602,4402,34039.038.036.034.035.037.032.031.030.029.033.028.0Poverty indicator($6.85/day PPP)GDP per capita(000 CFAF)35.0Budg.Law 2019Rev Budg.Law 2020Rev.Budg.Law 2021Budg.Law 2022Budg.Law 2023Rev.Budg.Law 202430.025.020.010.015.00.05.014the number of applicants being nearly ten times high-er than the offers.11To tackle this issue,the authorities have been set-ting up several vocational training centers,but a stronger alignment of skills and market needs will 11 Government of Gabon.2023.Bulletin Trimestriel de Suivi de lEmploi.No.10.June 2023.be key.Recently opened centers are dedicated to sectors like oil,wood and ICT.As of end-June 2023,among the 3,415 people who completed training at public training centers,20.6 percent were trained in electricity and electronics,20.0 percent in adminis-trative and management techniques,18.2 percent Figure 6.Number of enterprises identified in Gabon by number of employeesSource:Gabons Statistics General Directorate.General Enterprise Census.September 2023.70,00060,00050,00040,00030,00010,00020,0000None1 to 45 to 910 to 2930 to 99100 to 199200 to 9991,000 and aboveUndisclosedNot applicableTotal23,3478,7429467241975543537532,22866,662Other serviceactivities8%Services40%Transportationand ICT6%Trade3%Public works3%Other extractions1%Oil extraction2%Forestry andwood industry23%Agriculture,livestockhunting and fshing3ministration4ministrationand managementtechniques20%Mechanicalengineering7%IT12%Hotels and tourism9%Textile clothing2%Electricity-electronics21%Leather and skins1%Wood and furniture1%Public works18%Arts and graphics4%Industry9%Steelconstruction5%Figure 7.Distribution of private sector job opportunities by sector Figure 8.Distribution of skilled staff in public vocational training centers by sectorSource:Government of Gabon.National Employment Bulletin,June 2023.15in construction,12.2 percent in IT and 8.8 percent in hospitality and tourism(Figure 8).While can help improve human capital,it might be reinforcing mis-matches in certain areas.For example,18 percent of youth received training in construction,but this sec-tor represented 3 percent of job opportunities.On the other hand,the wood industry offered 23 percent of all jobs but training amounted to only 12 percent of all training(Figures 7 and 8).Reducing skills mismatches requires a stronger sectoral alignment of training with current job opportunities.IV.Inflationary pressures gradually abated,allowing the regional central bank to start easing monetary policy in 2025Inflation continued to decline over 2024,amid a tightened monetary policy adopted by the regional central bank,stronger price controls,and declin-ing global inflation.The consumer price index has been declining since mid-2022,standing at 0.9 per-cent in December 2024(y-o-y),since its peak at nearly six percent in late 2022(Figure 9).Since August 2023,inflation in Gabon has remained under the CEMACs 3.0 percent regional convergence criterion.While also 12 African Development Bank.2017.Technical Support for the Agricultural Transformation Strategy and Promotion of Youth Entrepreneur-ship in the Agricultural Sector and Agribusiness.Appraisal Report.13 Banque des tats de lAfrique Centrale.2025.Rapport de Politique Montaire.March.decreasing,food inflation was slightly higher at 1.2 percent in December 2024(y-o-y).In view of Gabons strong reliance on food imports,which cover about 60 percent of nutritional needs,12 imports contribut-ed to inflation,with imported inflation at 1.2 percent in December 2024.At the same time,the decrease in global inflation since 2022 was one of the reasons for the declining inflation in Gabon as indicated by the higher imported inflation at end-2022(6.2 percent)and end-2023(3.6 percent).Similarly,the decline in global energy prices since 2022,combined with the maintenance of subsidies on fuel and gas consump-tion,allowed energy inflation to be negative,at-2.0 percent.As mentioned previously,with the recent signs of decreasing inflation in Gabon and across CEMAC,the BEAC has gradually started to loosen its monetary policy in early 2025.13In recent years,the authorities have been stepping up efforts to contain the cost of living.Launched in 2017,the Fight Against an Expensive Life program(Programme de lutte contre la vie chre),establishes price ceilings and tax reductions for staple goods,which are negotiated with food distributors and con-sumers associations.The number of goods with fixed prices went from 67 basic items in mid-2023 to 102 in Figure 9.Inflation(monthly,y-o-y,in percent),January 2020-December 2024Source:Gabonese authorities.Note:Data for February 2024 and April 2024 was estimated based on an average of the previous and following months,as statistical data was not available for those months.10.08.06.04.02.0-2.00-4.0Consumer Price Index(growth)CEMAC convergence criteriaFood Price Index(growth)Jan-20Feb-20Mar-20Apr-20May-20Jun-20Jul-20Aug-20Sep-20Oct-20Nov-20Dec-20Jan-20Feb-21Mar-21Apr-21May-21Jun-21Jul-21Aug-21Sep-21Oct-21Nov-21Dec-21Jan-22Feb-22Mar-22Apr-22May-22Jun-22Jul-22Aug-22Sep-22Oct-22Nov-22Dec-22Jan-23Feb-23Mar-23Apr-23May-23Jun-23Jul-23Aug-23Sep-23Oct-23Nov-23Dec-23Jan-24Feb-24Mar-24Apr-24May-24Jun-24Jul-24Aug-24Sep-24Oct-24Nov-24Dec-2416October 2024,expanding to local food products and construction materials,in efforts to support access to housing.Other measures taken by the Government to support purchasing power in 2024 include the maintenance of wheat flour subsidies and free pub-lic transportation in Libreville,reduction of butane gas prices,reintroduction of fuel subsidies for industrial consumption,reduction of plane and train tickets,ex-pansion of scholarships,and increase of the age limit for imported cars to ten years.While providing relief for households,these mea-sures are costly,inefficiently targeted,and unable to address the underlying causes of the high cost of living,which are high trade and production costs.Measures to reduce living costs add a considerable burden to the budget,which already faces strong fi-nancial and fiscal pressures.They consume scarce resources that could be used to fund critical social in-vestments.In 2024,VAT tax benefits,including those related to the Vie chre program,were estimated at CFAF 40 billion(0.3 percent of GDP),while the cost of fuel subsidies amounted to CFAF 110 billion(0.9 per-cent of GDP).14 Most gasoline and diesel subsidies are captured by the wealthiest,who consume the most fuel.15 More efficient and less costly options,such as targeted social protection programs,could be consid-ered to support the most vulnerable while reducing fiscal risks.Moreover,structural reforms are needed to reduce the overall costs of producing,importing,and transporting goods in Gabon.Gabon greatly re-lies on imports to cover its needs for food and many other consumer goods and equipment.However,CEMACs tariffs are among the worlds highest,and non-tariff barriers further increase trade costs.Other barriers such as inadequate transport and power sup-ply,and petty harassment practices,make it expen-sive to produce and move goods,impacting house-holds purchasing power.14 Data on fuel subsidies is based on government estimates from November 2024;data on VAT tax expenditures is based on a modeling tool for VAT tax expenditures,developed by the tax authorities with World Bank technical support in early 2025.15 World Bank.2023.Gabon Economic Update.Special Topic:Reforming Fossil Fuel Subsidies.Washington,D.C.:World Bank Group.V.Gabons trade position benefited from strong commodity exports,while facing trade barriers and infrastructure challengesGabons strong commodity exports allowed it to maintain a high trade surplus in 2024.Global de-mand for Gabons main commodities was relatively sustained over the year,translating into higher pric-es for most exports:sawn wood( 1.6 percent price increase),manganese( 2.5 percent),rubber( 33.5 percent),and oil palm( 0.4 percent).The drop in oil prices was an exception(-3.1 percent,from USD82.6 to USD80).Nonetheless,oil output still grew in 2024,partially offsetting the decline in oil prices.As a result,while the nominal value of oil exports declined slight-ly,thanks to stronger oil production and higher prices for other commodities,Gabons exports increased by an estimated 6.6 percent in 2024,benefiting the trade position.Nominal imports increased by an estimated 14.1 percent in 2024,a result of higher public spend-ing and of measures to ease import restrictions for older vehicles.The Governments expansionary fiscal policy has been causing an increase in demand for different types of imports.The strong expansion in public works generated demand for imported inputs used in construction,for instance.Also,a broader increase in imports of food and other consumption goods reflects policies such as stronger social sup-port measures.Despite the increase in exports,the stronger in-crease in imports caused a slight decrease in the trade balance as a percentage of GDP in 2024.The trade surplus declined from 37.3 percent of GDP in 2023 to an estimated 36.2 percent in 2024(Figure 10).In absolute terms,however,the trade surplus in-creased from CFAF 7,488 billion to CFAF 7,581 billion.Meanwhile,the current account surplus,which in-cludes the trade balance plus primary and secondary incomes,increased from 28.5 percent to an estimated 30.7 percent of GDP over the same period,due to a decrease in the level of income outflows.17Gabon is highly dependent on exports of a few products,with 97 percent of exports deriving from three commodities:oil,manganese,and wood.In 2024,oil alone made up over 65 percent of all exports,16 World Bank.2018.CEMAC:Deepening Regional Integration to Advance Growth and Prosperity;Nkendah,Robert.2013.“Estimating the Informal Cross-border Trade of Agricultural and Horticultural Commodities between Cameroon and its CEMAC Neighbours”.Food Policy,Vol.41,pp.133144.highlighting a strong exposure to volatile markets de-spite the pursuit of diversification strategies(Figure 11).In recent years,the value of oil exports has been declining,in line with decreasing oil prices since 2022.Manganese and wood exports,on the other hand,have shown signs of a recovery from railway transport disruptions that strongly impacted exports in the pre-vious year.They amounted to nearly a third of exports in 2024.Rubber,palm oil,gold,fish and other goods made up the remaining 3 percent of exports.Gabons exports are also strongly concentrated in terms of markets,with China absorbing near-ly a third of all exports in 2024.Next come Italy and Indonesia,with about ten percent of exports each(Figure 12).Looking at exports by continent,nearly two-thirds of Gabons products were export-ed to Asia,one quarter to Europe,ten percent to the Americas,and 2.7 percent to Africa,out of which,only 0.7 percent went to its CEMAC neighbors.While in-formal cross-border trade flows are estimated to be high within CEMAC,16 there is still a strong potential for Gabon to deepen regional integration.Gabonese exporters could greatly benefit from reforms removing barriers to trade,such as logistical and infrastructure 705060304010200201920202021202220232024eTrade balanceOil exportsExportsCurrent account balanceImports%of GDPFigure 10.Recent evolution of Gabons trade position,percent of GDPSources:Gabonese authorities,World Bank staff calcula-tions.Note:2024 data is preliminary.Figure 11.Recent evolution of Gabons exports and composition of the 2024 export basketSource:Gabonese customs authorities.Note:2024 data is preliminary.4,0004,5003,5003,0002,5002,0001,5001,0005000202220232024CFAF billion(nominal)Oil productsManganeseWood productsRubberPalm oilGoldFish productsOtherOil products65.5%Manganese20.6%Wood products11%Rubber1.2%Palm oil0.2%Gold0.2%Other1.3challenges,and regulatory barriers such as road in-spections and difficulties in border compliance.Reflecting Gabons strong reliance on imported food and oil products,food and energy imports continued to increase in 2024,making up a con-siderable share of imports.In 2024,imports were comprised of equipment(35 percent),consumption goods(27 percent),intermediary goods(24 percent),and energy(13 percent).Within consumption goods,food imports represent nearly 20 percent of all imports(Figure 13).The Government has been promoting ag-riculture and fisheries to increase food security,jobs,exports,and farmers incomes.Yet,despite a vast agricultural potential,food imports continue to grow,driving up the cost of living due to high tariffs and trade barriers persisting in Gabon.The recent evolution of the import basket may also indicate challenges to expand local industri-al activity.The Government has been pursuing plans to incentivize local firms to move up in value chains and produce more locally processed goods.Since the 2010s,a wood processing industry emerged,thanks to policies such as a ban on log exports and the set-ting up of a special economic zone in Nkok.Also,lo-cal palm oil and gas industries are being launched.However,local transformation of manganese,fish,and other products remains below potential.Recent data on imports do not seem to point to a strong industrial expansion.In 2024,imports of equipment other than cars,which tend to consist of machinery and other inputs needed to increase production,decreased by Figure 12.Top destinations for Gabonese exports,2024Source:Gabonese customs authorities.Note:2024 data is preliminary.Color shades indicate countries located in each continent:main importing countries in Asia(green),Europe(orange),Americas(yellow),Africa(blue),and all other countries(gray).France2.5%USA3.2%Malaysia5.9%Brazil6.2%India8%Indonesia9.9%Italy10.5%Netherlands3.2%Thailand2.5%China31.2rica2.7%Others14.1%Figure 13.Recent evolution of Gabons imports and composition of 2024 importsSource:Gabonese customs authorities.Note:2024 data is preliminary.6007005004003002001000202220232024CFAF billion(nominal)FoodOther consumptionVehiclesOther equipmentIntermediaryOil and other energyOther equipment27%Intermediary24%Oil and other energy14%Food18%Otherconsumption9%Vehicles8seven percent,compared to 2023.Over the same period,other types of imports increased,indicating that Gabons import profile remained heavily focused on consumption goods(Figure 13).Regarding trade in services,Gabon imports more services,estimated at CFAF 1,215 billion(9.6 percent of GDP)in 2024,while exports of services stood at CFAF 235 billion(1.9 percent of GDP).This reflects challenges to pro-mote service exports,despite a potential for sectors like ICT,as Gabon has one of the most developed and accessible digital infrastructures in the region.17Gabon imposes substantial trade restrictions on its firms,hindering competitiveness and rais-ing production and trade costs.As a member of a customs union,Gabon generally applies the CEMAC common external tariff,at around 18 percent.Gabons simple average tariff rate of 18.8 percent between 2020 and 2022 was the worlds 8th highest tariff,con-siderably higher than the average of 12.0 percent in Sub-Saharan Africa and the global average of 7.4 per-cent.18 Access to foreign goods and trade activity are also hampered by non-tariff barriers,such as complex regulatory and technical requirements and licensing processes,and logistical gaps.In 2023,Gabon was ranked 115th out of 139 countries on the World Banks Logistics Performance Index,which measures coun-tries performance in customs,infrastructure,ship-ments,and logistics.Firms face a mean port dwell time of 11.4 days for imports and 6.4 days for exports,compromising timeliness,costs,and causing losses of perishable goods.19 Another obstacle,particularly to regional trade,are the numerous inspections at the border and along trade corridors.For example,firms trading goods between Libreville and Cameroon can be stopped by public agents over 40 times(once every eleven kilometers),costing them about CFAF 1,980,000(USD3,736)through multiple fees,and a 15-hour delay in travel time.20 Moreover,Gabon im-poses substantial restrictions on trade in services.In the 2020 Services Trade Restrictions Index,substan-tial restrictions resulted in Gabons scores of 66.7 out of 100 for professional services,62.4 for communica-17 2024 Government estimates for trade in services(General Directorate for the Economy and Fiscal Policy);World Bank.2022.Gabon:Country Economic Memorandum;World Bank.2025(unpublished).Gabon Country Climate and Development Report.18 World Bank.World Development Indicators database.19 World Bank.Logistics Performance Index database.20 World Bank.2022.Gabon Economic Update.21 WTO-World Bank.Service Trade Restrictions Index database.tion,and 67 for transport.Gabons scores were higher than global and African averages,highlighting stron-ger service trade restrictions.21 VI.Combined with lower oil revenues,an expansionary spending policy caused a deterioration of the fiscal position in 2024Boosted by efforts to digitize tax and customs ad-ministrations,total public revenues remained rela-tively stable in 2024 despite a decline in global oil prices.Government revenues equaled 23.7 percent of GDP in 2024,compared to 24.6 percent of GDP in 2023(Figure 14).The decline in revenues was mainly due to lower oil prices.Global oil prices have been steadily declining since their peak close to USD100 in 2022,with a 9.5-percent drop observed in 2024,to about USD75.Tax revenue mobilization efforts re-sulted in a 4-percent increase in tax revenues in 2024,which only partially offset the 4-percent decline in oil revenues.Most government revenues in 2024 came from tax revenues,but non-tax oil revenues remained significant at 25 percent of total revenue.In recent years,tax revenues have been increasing consider-ably,from 9.5 percent of GDP in 2021 to 16.1 percent in 2024.This increase,however,reflects the depen-dence on oil,given that oil tax revenues account for 66.3 percent of corporate income tax revenues(Figure 15).Measures to diversify revenue sources are urgent in the current context of declining oil prices and un-certainty in global markets.To boost domestic revenues,the Government has stepped up digitalization efforts,but revenue col-lection remains constrained by large tax exemp-tions.In April 2024,Digitax,a new online platform was launched for filing and paying taxes,with man-datory digital filing progressively rolled out.Also,cus-toms offices at the Northern border,the last ones that were not yet connected to the Sydonia World system,20were digitalized in December 2023.As a result,tax and customs revenue collection have significantly ex-ceeded budget projections(Figure 16).While further increasing tax revenues remains important to sustain public finances,changes in tax rates require careful analysis due to social,distributional,and economic consequences.An efficient and relatively fast way to increase revenues would be to further rationalize tax exemptions granted to companies.Given the com-plex political and economic context of the transition,the authorities continued to use tax exemptions to attract investment.Estimated losses associated with Figure 14.Composition of fiscal revenue,CFAF millions Figure 15.Shares of oil and non-oil sectors contributions to the corporate income tax Sources:Government of Gabon,World Bank staff calculations.Note:Note:2024 numbers are estimates.Direct taxes includes corporate income tax paid by oil firms.Non-tax oil revenues includes state revenues from the oil sector,such as royalties and participations.Other taxes includes revenues from fines and land area fees paid by forest concessionaires.Other revenues includes grants and revenues from licenses,state participations in mining,forestry,and other sectors,and others.Figure 16.Tax collection performance(tax revenues as a%of total government revenues)Figure 17.Evolution of tax expenditure,CFAF billions Sources:Government of Gabon,World Bank staff calculations.Note:2024 numbers are estimates.3500000300000025000002000000150000010000000500000201920202021202220232024eDirect taxesTaxes on goods and servicesTaxes on int.trade and transactionsOther taxesNon-tax oil revenuesOther revenues100.020232024e80.060.040.020.00.0Oil CITNon-oil CIT31.833.766.368.270.0ForecastExecution20232024ExecutionForecast68.066.064.062.060.058.056.062.565.060.267.820020232024e2025f195190185180175170160165174.01191.70195.8421tax incentives have increased to an estimated CFAF 192 billion of foregone revenues,equal to 1.5 percent of GDP in 2024(Figure 17).Another challenge is to im-prove control and monitoring of tax expenditures,to avoid potential misuse or fraud behaviors that hinder tax collection goals.Public spending increased significantly,by about 24 percent in 2024,mainly driven by a sharp rise in capital expenditures( 155 percent)and govern-ment transfers( 48 percent).In response to high so-cial expectations resulting from the August 2023 coup dtat,the Government adopted several social mea-sures and support for firms in 2024 and early 2025.School scholarships were reintroduced for secondary school and fuel subsidies was reinstated for industrial consumers and for the Socit dnergie et dEau du Gabon(SEEG),22 the electricity company,which faces commercial and production challenges.Spending on subsidies and transfers increased from 2.8 percent of GDP in 2023 to 4.0 percent in 2024(Figure 18).Capital expenditures increased significantly to 5.4 percent of GDP in 2024,compared to 2.2 percent of GDP in 22 Gabon has made several attempts to reform fossil fuel subsidies,but past efforts were hindered by the absence of compensatory mea-sures such as targeted social protection programs.Fuel prices were liberalized in 2015,a price adjustment mechanism was introduced in 2016-2017,and subsidies were reinstated in 2021.From mid-2022 to mid-2024,fuel subsidies were removed for industrial consumption,after which they were reintroduced to all customers.A detailed analysis of this topic is available at:World Bank.2023.Gabon Economic Update 2023.2023,driven by large infrastructure projects launched by the authorities,such as a new administrative city,projected to enable rent savings of about CFAF 30 bil-lion per year;expansion and rehabilitation of nation-al and local roads;improvements in the railway and power and water networks;construction of schools,health clinics,and social housing;and modernization of military buildings.Despite the lifting of the freeze on civil service hir-ing and the recruitment of 26,900 persons in the civil service,the wage bill remained relatively sta-ble between 2023 and 2024.Spending on public sec-tor salaries amounted to CFAF 782 billion,or 6.2 per-cent of GDP in 2024.The wage bill had a limited rise because many recruitments were administrative regu-larizations of staff already present in the civil service.In addition,the civil service audit launched in October 2024 allowed to identify and eliminate irregularities,helping contain the wage bill.Spending on goods and services,at 3.3 percent of GDP in 2024,increased in view of the national political dialogue in April 2024 and the constitutional referendum in November.Figure 18.Composition of public expenditure,CFAF millions Figure 19.Evolution of the fiscal balance,percent of GDPSources:Government of Gabon,World Bank staff calculations.300000025000002000000150000010000000500000201920202021202220232024eWages and compensationUse of goods and servicesInterest paymentsCurrent transfersCapital expenditures2.01.00.0-1.0-2.0-4.0-3.0201920202021202220232024General government balance(accrual basis)22In a context of declining oil revenues,the increase in tax and customs revenues thanks to tax and customs digitalization efforts was unable to cover the significant rise in public spending.As a con-sequence,the fiscal balance deteriorated sharply in 2024.Gabon recorded a fiscal deficit of-3.7 percent of GDP in 2024,compared to a fiscal surplus of 1.8 percent of GDP in 2023(Figure 19).Meanwhile,the non-oil primary balance declined from-9.4 percent of non-oil GDP in 2023 to-15.9 percent in 2024,reflect-ing an important intensification of fiscal pressures.23 In addition to challenges to contain spending and mobi-lize more revenues,other important challenges in fis-cal policy include the lack of timely publication of key fiscal data,including of significant public investments.To finance spending needs,the state had to rely on borrowing,resulting in an increase in public debt to 72.5 percent of GDP in 2024,up from 70.6 percent of GDP in 2023(Figure 20).Gabon relied significantly on the regional financial market in 2024 to finance its grow-ing fiscal deficit.However,this strategy faced challeng-es due to the downgrading of Gabons sovereign credit rating in June 2024 by the rating agencies Fitch(from B-to CCC )and Moodys(from Caa1 to Caa2),and the 23 The non-oil primary balance refers to the difference between non-oil revenues and non-interest expenditures.Compared to the overall fiscal balance,it can be a better indication of the sustainability of a countrys fiscal policy,since it does not take into account the effect of oil revenue fluctuations.A detailed discussion can be assessed at:Davis,J.Fedelino,A.,Ossowski,R.2003.Fiscal Policy Formulation and Implementation in Oil-Producing Countries.IMF.August.24 Government of Gabon.2024 Revised Budget Law.increasing regional borrowing by CEMAC countries.The country was thus not able to mobilize all resources needed;out of the CFAF 727.8 billion sought on the regional market according to its debt strategy,Gabon was able to mobilize CFAF 664.3 billion,or 91.3 percent of the targeted amount.Similarly,Gabon was not able to mobilize new resources on the international finan-cial market in 2024,compared to a forecast of CFAF 469.9 billion in the Revised Budget Law.24 This under-performance created a financing gap and a build-up in external arrears,a long-term challenge aggravated by cash flow management issues.At end-2024,the stock of external arrears reached 1.8 percent of GDP,up from 0.5 percent of GDP at end-2022(Figure 21).The Central African Banking Commissions(COBAC)decision to increase the risk weight applied to banks for the acquisition of securities issued by the Gabonese Treasury also contribut-ed to a build-up in arrears.On October 18,2024,COBAC notified banks in CEMAC member states of the new risk weighting rates applicable to credit risk coverage on sovereign liabilities over 2024-2025.This weighting rate is calculated based on compliance with regional convergence and multilateral surveillance cri-Figure 20.Evolution of public debt,percent of GDPFigure 21.Stock of external debt arrears,percent of GDPSources:Government of Gabon,World Bank staff calculations.90.080.070.060.050.00.040.030.020.010.0201920202021202220232024Public debt(%of GDP)2.020212022202320241.81.61.41.21.00.40.20.60.80.023teria,namely a fiscal balance below-1.5 percent of GDP,a public debt below 70 percent of GDP,non-ac-cumulation of external and domestic arrears,and an inflation rate below 3 percent(Table 2).Not having met these criteria in 2023,Gabon saw its risk weighting increase from 65 percent to 100 percent.Banks were less able to participate in bond issuances,which,to some extent,contributed to disrupting budget execu-tion and accumulation of arrears.Impacts can con-tinue if Gabons request for a temporary exemption is not accepted by COBAC.At the same time,if im-plemented,this decision should reduce local banks exposure to sovereign risk.VII.Gabon has taken actions to more actively manage public debt,but still faces high public debt and debt servicing costsGabons public debt has been increasing since 2021,following an expansionary spending policy but also due to the additional debt components identified thanks to higher transparency since 2023.To respond to the COVID-19 pandemic and boost growth,the authorities pursued an expansion-ary fiscal policy,causing the debt ratio to increase from 59.8 percent of GDP in 2019 to 68.5 percent in 2021(Figure 22).Debt continued to increase since 2022,mainly due to the inclusion of new debt com-ponents,such as unpaid budgetary commitments,VAT and salary refund arrears,and stocks of Treasury bills.This inclusion was made possible by transpar-ency efforts taken by the Transitional Authorities fol-lowing the August 2023 coup dtat.The addition of these new debt components increased public debt between 2021 and 2024,bringing it to 72.5 percent of GDP in 2024,above the CEMACs 70-percent convergence target.While domestic and external debt have been increasing,due to strong cash flow constraints,the higher accumulation of arrears to suppliers and other unpaid commitments has been contributing the most to an increase in public debt over recent years(Figure 23).In 2024,Gabons debt consisted mainly of loans from the regional and international financial mar-kets,representing respectively 31.3 percent and 19.8 percent of total debt.Since 2019,debt owed to regional financial market investors has become more prominent,in line with the Governments strategy of relying more on the local market and reduce exchange rate risks(Figure 24).The share of debt owed to the regional market went from 10.3 percent of total debt in 2019 to 24 percent in 2024.This growing demand for regional financing has increased local banks ex-posure to the state and the states crowding out of credit to the rest of the economy.Holding 24.3 per-cent of total debt,multilateral creditors are Gabons 90.0201920202021202220232024e 2025f80.070.060.040.050.020.010.030.00Debt to GDP ratioFigure 22.Evolution of the debt-to-GDP ratio,percent Sources:Government of Gabon,IMF,and World Bank staff calculations.Note:2024 numbers are estimates and 2025 numbers are projections.Table 2.Criteria and calculation of risk weights applied to banks exposure to CEMAC Member StatesCriteriaRelative weightBudget balance as a percentage of nominal GDP(complied with/met if-1.5%or higher)20%Outstanding domestic and foreign debt-to-GDP(complied with/met if 70%or lower)10%Average annual inflation rate in%(complied with/met if 3%or lower)5cumulation of internal and external payment arrears in CFAF(complied with/met if=0)65%Source:COBAC.For purposes of the CEMAC convergence criteria,the budget balance is defined as the overall fiscal balance minus 20 percent of oil revenues and 80 percent of the difference between oil revenues and their average relative to GDP over the previous three years.24second largest creditor.Bilateral,local bank debt,and commercial debt accounted for 11.5 percent,9.4 per-cent,and 2.9 percent of total debt in 2024,respec-tively.Thanks to audits of domestic debt conducted in recent years,the moratorium debt,which represents debt resulting from agreements signed with compa-nies,mainly due to payment arrears for public works and provision of services,decreased from 4.4 percent of total debt in 2019 to 0.8 percent in 2024,as part of this debt was found to be irregular.With close to 70 percent of total debt denominated in foreign currencies,mostly in US dollars,Gabons public debt portfolio remains highly exposed to foreign exchange risks.This risk is increasing in the context of rising global uncertainty observed in April 2025,reflected by a sharp fluctuation in market pric-es.Fixed-interest rate debt represented 83 percent of the public debt portfolio,meaning that interest rate risks on Gabons debt are relatively low.With respect to debt maturity,although the average maturity of the debt portfolio was 5.7 years in 2024,refinancing risks on domestic debt were high at end-2024.The average maturity of domestic debt stood at 2.1 years in 2024,compared to eight years for external debt(Table 3).The sharp rise in interest rates in recent years,as part of global efforts to curb inflation,impact-ed developing countries borrowing costs and forced them to adjust public debt management strategies.In view of these financing pressures,Gabon,like other developing countries,adopted various strategies to manage debt more effectively.To reduce foreign exchange risks weighting on debt,Gabon increased regional market borrowing,as its local market,shared within CEMAC,is denominated in local currency.In addition,to reduce the severe liquidity pressures weighing on the budget and ease the burden of debt service on public revenues,the authorities launched active public debt management operations.Gabon carried out an early buy-back of its Eurobond maturing in June 2025,through two transactions,in November 2024 and February 2025.On domestic debt,Gabon also undertook active debt management operations,mainly to address the continuous decline in the average maturity of do-mestic debt observed since 2020(Table 4).In April 2025,Gabon reprofiled a large part of domestic debt,which involved issuing new securities and exchang-ing them with existing ones.This enabled it to extend Figure 24.Distribution of public debt,percent of total debtSources:Government of Gabon,World Bank staff calcu-lations.Note:2024 numbers are based on the latest data available as of end-November 2024.1009080706020103040500201920202021202220232024*Bilateral debtMultilateral debtCommercial debtExternal marketDebt to local banksMoratorium debtDomestic marketFigure 23.Composition of public debt,CFAF millions Sources:Government of Gabon,IMF,and World Bank staff calculations.Note:2024 numbers are estimates and 2025 numbers are projections.Information on additional debt components was not available prior to 2022.12,000201920202021202220232024e 2025f10,0008,0006,0004,00002,000Domestic debtExternal debtAdditional components25repayment periods from about 2-3 years to about 6 years,reduce liquidity pressures,and access new fi-nancing(see Box 1).Despite the recent debt management efforts un-dertaken by the country,debt service remains a considerable burden,claiming 42.6 percent of total government revenues in 2024.Debt servicing costs,including payments of interest and principal,have in-creased over recent years,up from 36.1 percent of total tax and oil revenues in 2019(Figure 25).While this cost decreased in 2024 compared to 2023,debt service continues to weigh heavily on public finances,limiting the states capacity to invest in urgent social and development needs,that are essential to achiev-ing higher growth.The high debt service costs were notably caused by tight global financing conditions and higher interest rates charged by Gabons creditors,re-flecting higher political and fiscal risks.On the one 25 As reported in the media(https:/ financing conditions have been imposed by central banks to curb inflation in advanced econ-omies,attracting more capital and thus making it scarcer for Gabon and other developing countries.On the other hand,Gabons debt service costs also in-creased due to the uncertain political context charac-terized by a military-led transition following the coup dtat of August 2023,and by the downgrading of the countrys sovereign rating,which resulted in higher risk perceptions.This credit rating downgrade reflect-ed the more uncertain political context and intensi-fying fiscal and financial pressures.In January 2025,Fitch further downgraded Gabons sovereign rating from CCC to CCC,and Moodys sovereign rating re-mained at Caa2.Thus,during its Eurobond early buy-back operation in February 2025,Gabon was charged a particularly high interest rate of 12.7 percent25(Box 2).In comparison,Gabon had not obtained an inter-est rate higher than 7 percent on various Eurobonds issuances since 2013,when market confidence was more solid.Table 4.Average maturity of Gabons public debt portfolio201920202021202220232024External debt6.47.67.86.25.58.0Domestic debt3.63.63.42.72.22.1Total debt5.76.26.34.94.25.7Source:Government of Gabon.Table 3.Cost and risk profile of public debt at end-2024Risks and costsExternal debtDomestic debtTotal debtAverage interest rate on public debt(%)3.66.04.5Refinancing risksAverage maturity(years)82.15.7Percent of debt maturing within a year10.429.417.9Interest rate risksAverage time to refixing(years)6.62.14.8Percent of debt to be refixed within a year34.529.432.5Percent of debt at fixed interest rates70.210083Exchange rate risksPercent of debt at foreign currency-60.9Percent of debt at floating exchange rate-66.9Source:Government of Gabon.Debt Strategy 2025-2027.Annex to the 2024 Budget Law.Note:the Governments debt strategy included domestic and external debt but did not include additional components identified in 2023,such as VAT refund and salary arrears,and unpaid budgetary commitments.Data as of early 2024,reflecting risks and costs prior to the early buyback of the June 2025 Eurobond and the domestic debt reprofiling operation in early 2025.26Box 1.Active public debt management operations launched by the Gabonese Authorities during the political transitionReprofiling and securitization of domestic debt(“Mouele”Operation)In March 2025,Gabon launched a vast reprofiling operation for its domestic debt,estimated at more than CFAF 1,400 billion(about USD2.4 billion),to reduce refinancing risks and increase room for maneuver in the medium term.This was in line with the authorities goals to manage debt more actively,to better prepare for the servicing costs of upcoming external debt maturities,in particular for bonds issued on the international market.This reprofiling operation was directly negotiated with local banks,involving ten financial institutions in the CEMAC region,led by BGFI Bank,a Gabonese bank.Named as Mouele project,this domestic debt re-profiling was carried out in a context where Gabons domestic debt repayment represents a high liquidity risk,particularly given the high cash flow pressures.Indeed,as of March 2025,78 percent of the domestic debt,or CFAF 1,977 billion,would have to be repaid between 2025 and 2027(Figure B1).Moreover,regional market borrowing costs are also high in CEMAC.Discounts are applied on securities issued by CEMAC states,with negative impacts for risk analyses,creating an unhealthy competition among states.Thus,interest rates paid by Gabon have been much higher over the past two years,in view of political risks in the context of the transi-tion and elections.In addition,banks overexposure to public debt and the increasing state debt solicitation in the regional market,owing to the scarcity of external financing,meant that banks could not fully meet states financing needs.This has led to mixed results on the latest issuances in 2024 for Gabon and other countries.The Mouele operation comprised three components.The first was a reprofiling of CFAF 592 billion in the securities market,involving existing securities.In February 2025,the outstanding domestic public debt amounted to CFAF 2,196 billion,out of which CFAF 1,741 billion consisted of securi-ties issued on the CEMAC mar-ket with an average maturity of 2.3 years.Maturity periods were heavily concentrated over the next years(Figure B1).Carried out through voluntary bilateral exchanges with banks,this re-profiling increased the average maturity of Gabons domestic debt from 2.3 years to 6 years,re-ducing liquidity risks.The second component of the Mouele operation was a securitization of CFAF 473 billion of off-market bank claims at an interest rate of 6.99 percent.These bank claims were converted into a 9-year Treasury bond with a two-year grace period,improving banks liquidity and ability to participate in issuances,as the debt that was securitized was weighing on banks balance sheets,due to the low liquidity of the CEMAC secondary market.The BEAC cleared this operation and guaranteed the liquidity to all holders,and new securities are eligible for refinancing by the BEAC.Finally,the third component involved mobilizing CFAF 338 billion in new financial resources from banks,which converted new debt securities into Treasury bills,enabling Gabon to settle arrears with development partners and fund public investments.Early buyback operations of the June 2025 Eurobond On November 7,2024,Gabon launched a first early buyback of USD290 million of its June 2025 Eurobond,which was originally of USD700 million,to reduce the risk of default due to the perceived heightened country Figure B1.Redemption profile of the public debt portfolio at end-2024,CFAF billionsSource:Government of Gabon,Debt Strategy 2025.1,4001,2001,0008004006002000202520262027202820292030203120322033203420352036ExternalDomestic27The increase in Gabons borrowing costs was also visible in the regional market,reflecting a higher risk perception over a one-year horizon.The inter-est rate on 3-month Treasury bills issued by Gabon increased from 3.06 percent in January 2019 to 6.73 percent in January 2025,while interest rates on one-year maturities rose from 7.32 percent to 7.6 percent(Figure 26).Furthermore,while yields on government securities had fallen between January 2023 and February 2024,they rose again in January 2025.This recent rise in early 2025 can be attributed to the rating downgrading by Fitch in January and the acceleration of the transition calendar.Initially foreseen in August 2025,presidential elections were advanced to April,Figure 25.Burden of debt service on public finances,percent of total fiscal revenues Figure 26.Evolution of the Gabonese government securities yield curve,percentSources:Government of Gabon;BEAC.Box 1.Active public debt management operations launched by the Gabonese Authorities during the political transition(continued)risk,which had led to high interest rates.In addition,high debt servicing costs due in 2025 exert strong pres-sure on liquidity,an issue exacerbated by the political context.This operation was financed by bonds issued on the regional market,with borrowing in CFA francs,via two domestic syndications,allowing Gabon to convert part of external debt into domestic debt.The loan was obtained at a 7-percent interest rate,for a buyback of debt initially issued at 6.95 percent.On February 10,2025,Gabon launched a second early repurchasing operation,for the remaining USD315 mil-lion of its June 2025 Eurobond.It involved a double transaction,with an early Eurobond redemption and a USD570 million bond issuance via a private placement.Foreign resources were mobilized from international investors specializing in emerging markets and frontier debt.This operation produced about USD202 million in foreign exchange resources for Gabon but came at a high cost.The yield required was 12.7 percent,one of the highest for emerging market borrowing,reflecting a perception of very high sovereign risk,in a context of high liquidity pressures and strong fiscal challenges.These operations allowed Gabon more time to improve the sustainability of public finances,including poten-tially securing an IMF program and bringing in policies capable of reducing bond yields.Programs with the IMF often lead to facilities that help augment foreign exchange resources and contribute to countries capacity to obtain support from other development partners.80.070.060.050.00.040.030.020.010.02019202020212022202320241210864203-month6-month1-year1.5-year2-year3-year3.5-year4-year5-year6-year7-year8-year9-year10-yearJan-19Jan-23Feb-24Jan-2528which provided reassurances on the advancement of the transition but caused a momentary rise in uncer-tainty during the election period.To reduce the risk of debt distress and ensure public debt sustainability,it is essential to adopt an adequate and sustainable fiscal policy and improve the management of public finances.Structural reforms are needed to increase domestic revenue mobilization,contain and improve the quality of public expenditure.Such measures would be key to strengthening the states capacity to service debt.In a context where external financing is becoming scarcer,it is also important to improve debt management and debt data transparency,to preserve access to finan-cial markets over the longer term.VIII.Firms face challenges to access financing whereas financing costs increased for the stateCredit to private firms increased in 2024,but Gabons banking sector remained vulnerable to a relatively high share of non-performing loans.The volume of credit distributed to the private sec-tor increased in 2024( 9.9 percent),reaching CFAF 2,028.1 billion,due to the higher public investment to fund large public works,particularly in roads and energy,which boosted domestic activity,especially for construction companies and related services.At the same time,claims held on the state fell slightly(-1.6 percent),standing at CFAF 1,108.1 billion in 2024(Figure 27).However,at end-2024,the non-perform-ing loan rate stood at 9.0 percent,up from 8.0 percent in the previous year.In comparison,in the CEMAC re-gion,on average 16.2 percent of total loans were in default at end-2024.26 Local banks exposure to the state remains signifi-cant and the public sector is still crowding out pri-vate sector financing.Despite the increase in credit to the private sector,access to finance is considered one of the major obstacles to private sector develop-ment in Gabon.27 Banks interest in government se-curities derives from the perceived lower risk that the 26 COBAC.2025.Analyse et risques du secteur bancaire de la CEMAC au 31 dcembre 2024;World Development Indicators database.In comparison,in 2021-2022,on average 11 percent of loans were non-performing in SSA(based an average for 26 countries with avail-able data),and the global average was 6 percent(for 140 countries).27 World Bank Enterprise Surveys database.In 2009,30.4 percent of firms identified access to finance as a major constraint and 8.6 percent considered it as their biggest obstaclestate represents compared to a private borrower.This is also explained by the significant increase in inter-est rates on government securities issued by CEMAC countries,given the deterioration of their fiscal posi-tions and the resulting increase in risk perceptions.Even though domestic and international finan-cial markets remained accessible to Gabon in 2024,financing costs increased significantly.While Cameroon,Gabon and Congo were able to issue Treasury bills at an average interest rate of 3.82 per-cent for a three-month maturity and at an average in-terest rate at or lower than 5.9 percent for one-year maturities in April 2020,interest rates have increased in recent years.For these same maturities,the aver-age interest rate requested by investors rose to 6.25 percent and 7.9 percent respectively in February 2024.This reflects the strong regional market financing de-mand by CEMAC member states due to growing finan-cial difficulties,resulting in competition among states in 2024.For Gabon,the interest rate payable on 3-month maturities rose from 4.09 percent in April 2020 to 6.03 percent in February 2024,while,the interest rate on one-year maturities went up from 6.36 percent to 7.82 percent in the same period(Figure 28).Similarly,the spread on Eurobonds issued by Gabon has been in-Figure 27.Credit to the economy,CFAF millions Source:BEAC.2500000202320242000000150000010000005000000Credit to the private sectorCredit to the State29creasing,rising from 667 basis points in January 2024 to 833 basis points on March 28,2025(Figure 29).IX.Gabons growth outlook is exposed to a challenging and highly uncertain global environmentGlobal economic activity is expected to slow while growth in SSA is forecast to slightly increase in 2025Global growth is projected to slow to 2.2 percent in 2025,down from an estimated 2.8 percent in 2024,amid rising trade uncertainty.Ongoing mod-erating inflation and easing monetary policy should support growth.However,heightened uncertainty in trade,fiscal,monetary,and regulatory policies are a key risk for the world.Countries imposing or facing higher tariffs could suffer direct losses,while others could experience collateral damage due to subdued demand from trading partners and imported inflation in a context of trade fragmentation,prompting cen-tral banks to maintain higher interest rates,affecting global consumption and investment.Moreover,the potential escalation of Russias invasion of Ukraine or conflicts in the Middle East adds uncertainty,as the 28 World Bank.2025.Global Economic Prospects.January.world is witnessing the highest number of conflicts since World War II.28 Despite global trade uncertainty and foreign aid reduction,growth in SSA is expected to increase in 2025,supported by easing financial conditions and further declines in inflation.SSA growth is expected to increase to 3.7 percent in 2025.A gradual easing of policy interest rates should improve private consump-tion and investment.However,high debt levels and borrowing costs would continue to constrain the fiscal space.In CEMAC,growth should slow down to 2.4 percent in 2025,reflecting lower projected oil prices and a decline in export demand from key trade part-ners,as Europe and China absorb around 60 percent of regional exports.Also,fiscal risks are increasing for CEMAC due to prospects of a sustained decline in oil prices,already observed in April 2025.Overall,SSA faces strong risks like persistently high risks of de-faults due to weak fiscal positions and worsening se-curity conditions,such as in Sudan,parts of the Sahel,DRC,and in regions within CAR and Cameroon.Gabons outlook is also expected to be impacted by an unstable global trade and financing environmentFigure 28.CEMAC countries yield curve in 2020 and 2024 Figure 29.Evolution of the spread on Gabons and Africas EurobondsSources:BEAC,Bloomberg.1210864203-month6-month1-year1.5-year2-year3-year3.5 year4 year5-yearGabon 2020Congo 2020Cameroon 2020Gabon 2024Congo 2024Cameroon 20241,0009008007006005004003001002000Jan-24Feb-24Mar-24Apr-24May-24Jun-24Jul-24Aug-24Sep-24Oct-24Nov-24Dec-24Jan-25Feb-25Mar-25Gabons spread(EMBI)Africas spread(EMBI)30Gabon is projected to grow by about 2.4 percent over 2025 to 2027,mainly driven by non-oil com-modities,as the oil sector is set to face a number of challenges.With the recent move from transition to elected government,political uncertainty should decline.The newly elected government took power in May 2025,and an elected parliament and consti-tutional court are expected by late 2025,completing the return to constitutional order.This could improve investor c
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