Somalia Financing Architecture

1. Somalia Financing Architecture Presented by: Abdirahman Shariff Abdirizak Hassan

2. Aid effectiveness in Fragile States • Aid effectiveness is dependent upon: • Ownership • Alignment • Harmonisation • We need manageable process in Somalia due to : • High levels of aid dependency • Uncoordinated Multiple donors • Low level of capacity – systems, skilled staff, etc. • Not enough own source of revenue – weak revenue collection • Urgent need to deliver results – high public expectation • Urgent need to rebuild trust – critical transparency

3. Use of Government System- on budget • Use of government system – bring all aid expenditures on budget and in government system = best aid modality • It ensures ownership, alignment and harmonisation • Measure of success is to determine how much is used in the government system • There are eight measures to determine to what extent aid on budget

4. Characteristics of the use the government system

5. Country examples • There have been innovative approaches in many countries • There are three “star” examples • Sierra Leone • Afghanistan • Liberia • But also a range of other individual innovations in challenging environments • Zimbabwe • Timor Leste

6. Afghanistan Trust Fund Liberia Health Pooled Fund Sierra Leone Budget Support

7. Budget Support in Sierra Leone just after war ended • Benefits included: • a non-inflationary boost to public spending • higher spending in MDG-related areas • significant improvements in public financial management. • provision of a robust donor coordination mechanism • But it was high-risk, high-benefit strategy: • Based on very close relationship between UK and Sierra Leone government at political and security level • In general donors no longer willing to take such risks • But EU is leading the way with new Statebuilding Contract • And DFID is considering whether it needs a similar instrument.

8. Afghanistan Reconstruction Trust Fund • Great success – originally designed to manage around $50m but ended up managing $ 5 billion • Reasons for success: • Enabled financing of recurrent expenditures including police salaries which donors are normally reluctant to fund • All expenditures were audited on monthly basis – if audit on any item failed then the government was not reimbursed for that item for that month – this ensured money was well spent and any problems were picked up quickly • Government used the trust fund as a bank account • Limited earmarking (50% limit) so reflect government priorities • Flexible procurement

9. Current status in Somalia • Large share of donor assistance is for humanitarian purposes • Uncoordinated aid expenditures- duplicative and inefficient. • Many and sometime contradictory instruments in existence (and new ones proposed) • Most aid flows outside the budget & Somali government institutions • Inadequate information of how donor funds are spent and what is their impact • No option to support recurrent costs of Government

10. Examples of Instruments with no government role or oversight

11. New deal financing architecture proposal • Bring together all fund instruments under one umbrella coordination mechanism chaired by the Government • Establish Finance Committee chaired by Minister of Finance and Planning • Establish government led joint secretariat in Mogadishu to ensure transparency, accountability and effective monitoring of impact • Integrate all government and donor funded activities into single budget presentation

12. Key Features • Quickly (as in Afghanistan) and not slowly (as in South Sudan) • According to the areas that Somalia prioritises and not just to the traditional donor priorities • That maximises the use of the government’s own systems • That builds government’s own capacity and doesn’t undermine it • In a transparent and accountable way to all Somalis • That delivers results in the most cost effective way

13. Proposal Framework (B) Donor Funds are combined into a single Fund Account, managed and administered by Committee Finance Committee Somali Development and Reconstruction Facility SDRF High Level Steering Committee Composed of SFR and Donors and chaired by SFG and Responsible for making funding decisions at the priority level Single Treasury Account Funds are allocated to specific a priority fund, e.g. Security. Priority Funds are administered by SFG and contributing donor/s Priority Fund 1 Priority Fund 2 Priority Fund 3 Technical Finance Committee Project Allocation Composed of SFG and Donors and chaired by SFG Responsible for allocating funds from the Priority level to Projects Line Ministries and regions submit project proposals to request funding from the Priority Funds Project Allocation

14. Next Step • Incorporate the comments today • Continue the discussion with our partners

15. Immediate Steps • Support the SFF and allow it to demonstrate its effectiveness • Donors to place key decision makers in Mogadishu – this is best way of developing trust that is fundamental to effective aid partnership • Develop plan for service delivery

16. Thank You For Listening Questions and Discussions