Study: “Politics and mistrust” blamed for Somalia’s fiscal federalism deadlock
By Mohamed Abdimalik
Nearly a decade after Somalia adopted the Provisional Federal Constitution, paving the way for a federal system of governance, Somali leaders are still unable to settle on a fiscal framework to manage and share the country’s resources.
A new study on the state of fiscal federalism launched on Thursday by Somali Public Agenda (SPA), a non-profit research center in Mogadishu, cited “lack of trust and political disagreements” as a significant roadblock to achieving fiscal structure necessary for federalism to work in Somalia.
Mahad Wasuge, the report’s co-author and SPA’s Executive Director, says that “persistent dispute over fiscal powers and confusion over responsibilities for service provision” has delayed progress on much-needed legal and economic reforms.
Numerous laws on public finance management passed by the Federal Government of Somalia (FGS) without consulting the states or obtaining senate approval have only added fuel to the fire.
Rift over revenue
At the heart of the protracted fiscal deadlock is a scramble between the federal government and states over an already meager national cake. Since 2016, the two sides have held several rounds of negotiations to find a revenue allocation formula covering various sources such as donor funds, fisheries, petroleum, and mineral resources.
In the absence of a transparent legal regime, Somalia current fiscal arrangement, Mahad says, is “a gentleman’s agreement” that is seen by many as neither fair nor equitable by any reasonable standards.
Some states complained that the current informal resource sharing structure is unfair and fails to consider the newly formed states’ poor infrastructure and capacity to generate revenue, population size, or even on needs.
Banadir administration, for instance, receives only a paltry 15% out of the revenue collected from Mogadishu airport and seaport. The fisheries revenue-sharing agreement of 2019 is similarly skewed, with FGS earning 29%, while Puntland gets 18% and the remaining states each get around 13%. As a result of this mismatch between needs and resources, essential services such as security, sanitation, and health suffer neglect.
The report also noted that FGS and Puntland generate domestic revenue that dwarves states such as Galmudug, Hirshabelle, and South West, which lack functional seaports and struggle with weak institutions, insecurity, and internal political disputes.
States also faulted the federal government for not honoring informal agreements, politicizing grant allocations, and subjecting fund disbursement to political loyalty.
Fiscal progress
Despite fraught financial relations, the report says federal states made significant progress in fiscal management. All states now have public finance and revenue laws, use electronic finance systems, and raise numerous types of taxes and fees.
State budget documents reviewed by the report’s authors show that federal member states rely on a mix of creative, diversified tax base. Most are raising taxes from as many as a dozen sources. Still, due to insecurity and weak systems, the actual revenue remains paltry.
Way forward
Mahad says their study aims to demystify the critical issues at stake for the public and also raise awareness of workable fiscal options.
But most importantly, he hopes their work will open up a debate during this electioneering period, help Somali leaders to unlock this protracted problem, and put Somalia on the path “towards debt relief and economic recovery.”
Mohamed Abdimalik is an independent journalist based in Mogadishu and contributing data reporter for Goobjoog News. He is also the Director of FESOJ Disinformation Lab.