Can Somalia Finance Its Own Future? World Bank Flags Deep Revenue and Spending Gaps

Somalia’s domestic revenue remains at just 6.3% of GDP, far below peer-country averages, as declining foreign assistance intensifies pressure on public finances. A World Bank review outlines how stronger revenue collection, more efficient spending and fiscal cooperation could unlock economic growth, expand employment opportunities and reduce poverty by 2033.

Somalia's economic recovery is entering a more demanding phase as the government confronts a widening divide between its domestic revenue capacity and the resources required to finance development. Despite progress in rebuilding fiscal institutions, revenue collection remains exceptionally low, raising questions about how the country can sustain public services, address poverty and strengthen economic resilience as external assistance declines.

Domestic revenue reached an estimated 6.3% of gross domestic product (GDP) in 2025, marginally above 6.2% in 2024, according to the World Bank's Somalia Public Finance Review: The Next Stage of Public Finance. The increase signals continued fiscal progress, but leaves Somalia considerably behind peer economies, where revenue collection averages 15–17% of GDP.

The disparity exposes a major tension in Somalia's development trajectory. The country has rebuilt important elements of its public financial architecture, yet its capacity to generate resources remains insufficient to support core state functions and growing development requirements. Closing this gap will require more than additional taxation; it demands stronger expenditure management, fiscal accountability and coordination across government institutions.

A Rebuilt Fiscal System Faces a Revenue Reality Check

Somalia's recent fiscal achievements provide a foundation that was considerably weaker a decade ago. Progress toward macroeconomic stability, stronger public financial management and completion of the Heavily Indebted Poor Countries Initiative has improved the institutional environment for managing government finances. However, these advances have not translated into a revenue system capable of financing the country's extensive development needs.

The challenge has become more pressing as declining external assistance coincides with substantial infrastructure deficits, widespread poverty and increasing security expenditure. Health and education spending remain among the lowest internationally, demonstrating how constrained public finances limit the resources available for essential services.

Revenue collection is therefore emerging as a defining measure of Somalia's fiscal transition. Although the government has achieved incremental improvements, the distance between its 6.3% revenue-to-GDP ratio and the 15–17% peer benchmark indicates that existing gains remain modest relative to the scale of financing requirements.

The World Bank identifies customs administration, tax compliance, legal modernization and digital revenue systems as important opportunities for strengthening collections. Broadening the tax base could also increase the resources available to government without making public financing dependent on a narrow set of revenue sources.

Administrative modernization forms an important part of this agenda. Better collection mechanisms and improved compliance could strengthen the effectiveness of the revenue system, while updated legal arrangements could provide a stronger institutional framework for taxation. However, the potential contribution of individual reforms remains dependent on their implementation and effectiveness.

The broader fiscal challenge lies in translating institutional improvements into sustained financing capacity. Somalia's previous progress has strengthened the foundations of public financial management, but continued revenue weakness demonstrates that rebuilding institutions and securing adequate development financing are distinct tasks requiring sustained attention.

Somalia's Federal Revenue Divide Complicates the Service Delivery Equation

Somalia's fiscal difficulties are not confined to how much revenue the government collects. They also involve how financial responsibilities are distributed across its federal structure, creating an additional challenge for equitable public spending and effective delivery of essential services.

The Federal Government collects approximately 71% of domestic revenues, according to the World Bank review. Federal Member States and local administrations, meanwhile, perform important functions in delivering frontline services. This arrangement places considerable importance on coordination between the institutions collecting resources and those responsible for meeting public needs.

Stronger intergovernmental fiscal cooperation could improve how resources move through the public sector and support more consistent service delivery. Without effective coordination, the relationship between revenue collection and spending responsibilities may constrain the ability of different administrations to finance their development priorities.

The issue is particularly relevant to education, healthcare and other services requiring reliable public financing. Improvements in national revenue collection alone cannot determine service outcomes unless expenditure decisions and intergovernmental financial arrangements also support effective resource allocation.

Fiscal federalism consequently occupies a central position in Somalia's reform agenda. The World Bank emphasizes stronger coordination across government levels as a means of improving equity, strengthening state capacity and making public spending more responsive to development requirements.

However, federal cooperation represents only one dimension of the challenge. Expenditure efficiency, debt and fiscal risk management, public financial accountability and stronger revenue mobilization must advance alongside institutional coordination. These priorities are interconnected because weaknesses in one area can limit progress achieved elsewhere.

A 2033 Growth Opportunity Depends on Turning Fiscal Reform Into Results

The economic potential associated with Somalia's reform agenda is substantial, although the projected benefits remain conditional. World Bank simulations indicate that comprehensive public finance reforms could raise GDP by 9.3 percentage points relative to the baseline and increase domestic revenues by 6 percentage points of GDP.

The projections extend beyond fiscal indicators. The modeled reforms could support the creation of more than 54,500 teaching jobs and improve opportunities involving approximately 250,000 higher-productivity jobs. Poverty could decline to 47% by 2033 under the reform scenario.

These estimates illustrate how stronger public finances could connect with broader economic and social outcomes. Increased revenues could expand the government's financing capacity, while more effective expenditure management could help direct resources toward services and development priorities.

Yet the projections should not be mistaken for guaranteed outcomes. Their realization depends on the implementation of reforms addressing revenue administration, spending efficiency, fiscal risks, accountability and intergovernmental coordination. The modeled results indicate potential gains rather than achievements already secured.

For Somalia, the immediate test is whether modest revenue improvements develop into sustained fiscal progress while external assistance continues to decline. Equally important will be whether stronger financial management enables available resources to support public services, employment opportunities and poverty reduction.