Highlights

The World Bank has been a critical enabler for statebuilding and was the lead agency for strengthening governance systems and capacity in Somalia’s fragility, conflict, and violence context. World Bank support relevantly prioritized the Peacebuilding and Statebuilding Goals of the Somalia New Deal Compact: this involved building basic administrative capacity and core institutions; developing revenue mobilization capacity; supporting intergovernmental relations; and developing service delivery systems.

Given a challenging starting point, results are commendable. State capacity, especially in public financial management systems, reporting, and transparency, has improved, but the federal structure continues to pose challenges. Intergovernmental fiscal relationships remain contested and domestic resource mobilization remains very low.

Several interventions and adaptations contributed to the effectiveness of World Bank support: (i) the programmatic deployment of public financial management reform; (ii) the use of country systems to channel Recurrent Cost and Reform Financing support; and (iii) procurement risk mitigation through technical assistance to the Financial Governance Committee.

The Heavily Indebted Poor Countries process has been effective in encouraging the federal government and federal member states to agree on critical issues of fiscal federalism and other reforms supported by the World Bank. Now that the Heavily Indebted Poor Countries Completion Point has been reached, a new framework to anchor the statebuilding reform agenda is needed.

Progress has been constrained by unresolved political and constitutional disputes, which has affected agreement on fiscal federalism and revenue sharing. Global governance indicators have not yet improved.

This chapter assesses the relevance, effectiveness, and sustainability of the Bank Group’s contribution to building the capacity of the state. After the collapse of state institutions during the prolonged civil war, statebuilding was critical. The starting point for this evaluation is 2012, when Somalia had been without a government structure and institutions for two decades. During that time, several attempts at restoring institutions and government had failed. Finally, in 2013, the multistakeholder International Dialogue on Peacebuilding and Statebuilding resulted in Somalia’s New Deal Compact and five Peacebuilding and Statebuilding Goals: legitimate and inclusive politics, security, justice, economic foundations, and revenue and services. The compact sought a “new political, security and development architecture framing the future relations between Somalia, its people, and the international community” (Hearn and Zimmerman 2014). The Bank Group was a signatory to the New Deal Compact, which guided the work of development partners and of the Somali government.

Relevance of the World Bank’s Statebuilding Interventions for Somalia’s Statebuilding Goals

The lending and advisory activities of the FY13–22 country program aligned well with aiming to address the Peacebuilding and Statebuilding Goals. Figure 3.1 shows the Peacebuilding and Statebuilding Goals supported by World Bank operations. Support to Peacebuilding and Statebuilding Goal 5 (revenue and services) is the most prominent, followed by Peacebuilding and Statebuilding Goal 4 (economic foundations), both of which align with areas of the World Bank’s comparative advantage. The World Bank also sought to support Peacebuilding and Statebuilding Goal 1 (inclusive politics) through the Poverty Reduction Strategy Paper process (involving regional technical dialogue and civil society organization consultation) and through policy support on issues relating to economic foundations and public finance. Over time, the breadth of activities across the Peacebuilding and Statebuilding Goals narrowed. Although the ISN was broad in scope, activities under the CPF focused mainly on Peacebuilding and Statebuilding Goals 4 and 5 (figure 3.1, panel b).

Figure 3.1. World Bank Lending Portfolio and Somalia’s Peacebuilding and Statebuilding Goals (percent)

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Figure 3.1. World Bank Lending Portfolio and Somalia’s Peacebuilding and Statebuilding Goals (percent)

Sources: World Bank 2013c, 2018a.

Note: PSG = Peacebuilding and Statebuilding Goal; PSG 1 = inclusive politics; PSG 2 = security; PSG 3 = justice; PSG 4 = economic foundations; PSG 5 = revenue and services.

The areas targeted by the World Bank were highly relevant for addressing some of the most critical needs of statebuilding. The statebuilding portfolio consists of four series of operations: the PFM series, the Recurrent Cost and Reform Financing series, a civil service capacity-strengthening series, and support to domestic revenue generation (table 3.1). The statebuilding portfolio included interventions that aimed to elaborate the design of federalism as the basic governance framework, develop domestic revenue mobilization capacity, and build basic state institutions. This framework assumes that once state functions have been restored, the delivery of services will improve and economic opportunities will be enhanced, which would strengthen state legitimacy and resilience.1

Sources: World Bank and Independent Evaluation Group data.

Note: Excludes development policy financing. Number of ASAs based on content analysis of ASA documents. ASA = advisory services and analytics; PFM = public financial management.

World Bank support for developing an intergovernmental fiscal system was highly relevant for giving substance to the federalism framework.

• Statebuilding needs. The 2012 Provisional Constitution proposed a governance framework based on federalism (giving significant autonomy to the federal member states), collaboration between the government and the federal member states, and cooperation among the federal member states. The constitution did not lay out details of intergovernmental relations, which were to be negotiated. Intergovernmental fiscal transfers were nonexistent; de jure revenue and expenditure assignments were unclear.
• Support provided. The World Bank acted as a facilitator and provided technical assistance in political negotiations related to federalism. Through technical assistance, budget support, and the Recurrent Cost and Reform Financing program, the World Bank supported the dialogue among Somalia stakeholders (including through the government and the federal member states finance ministers’ Intergovernmental Fiscal Forum) to clarify the fiscal dimensions of its federalism design and the cooperation arrangements between federal and state governments regarding education and health service delivery.2

Bank Group support for building domestic revenue mobilization capacity addressed a foundational need and met preconditions to provide and fund basic core functions and services.

• Statebuilding needs. The government faced major challenges to build presence and authority and mobilize domestic revenue for a wide range of security, reconstruction, and development needs (Raballand et al. 2021).3
• Support provided. Support for domestic revenue mobilization had two components. The first was improving the efficiency of customs revenue and administration through customs policy reform and system modernization. This includes customs regulations on valuation, the establishment of an ad valorem tariff schedule, and rollout of the Somalia Customs Automated System. The second was raising inland revenue through the introduction of turnover taxes and a spectrum fee for telecom operators; regular publication of a statement of tax exemptions; operationalization of point-of-sale machines in the tourism sector; and automation of Taxpayers Identification Number issuance and revenue receipts (World Bank 2013c).

World Bank support was highly relevant for building basic public administration capacity, especially the PFM system.

• Statebuilding needs. No regulatory framework defined the mandates and functions of federal government agencies and subnational governments. Although two subnational entities (Somaliland and Puntland) possessed some state structures and capacities, this was not the case for newly created federal member states. Technical and policy expertise was missing in almost all government agencies and was typically provided by donor-financed short-term advisers without clear regulations.
• Support provided. Projects totaling $64.5 million were dedicated to strengthening PFM capacity.4 Recurrent Cost and Reform Financing projects (totaling $350 million) aimed to transfer budget support resources through government systems while strengthening them. Through the Capacity Injection Project (P149971, $40 million), the World Bank aimed to assist the Federal Government of Somalia and Puntland State Government to strengthen staffing levels and develop capacity to formulate policies and programs and perform PFM, procurement, and human resource management in a standardized, rules-based manner.

Recurrent cost financing met an urgent need to fund core government functions through a context-appropriate instrument.

• Statebuilding needs. The funding of the recurrent costs of the federal government and some federal member states met an urgent need to pay the salaries of key government staff, since the government was unable to finance its core functions. Given the high dependency of the government of Somalia on official development assistance to meet recurrent costs (in 2022, 64 percent of the government budget was funded by grants), including paying its nonsecurity civil servants, the Recurrent Cost and Reform Financing program was relevant and well targeted to Somalia’s critical needs.
• Support provided. Budget support through Recurrent Cost and Reform Financing helped fund the government’s wage bill and other recurrent expenses starting in FY15 and, more recently, budget support has been provided through both Recurrent Cost and Reform Financing and DPOs. In all, the World Bank provided $466 million in budget support through seven operations during FY15–22 using these two instruments, equating to 20.6 percent of World Bank financing to Somalia.5 ,6

Although the World Bank’s diagnosis of the security sector was highly relevant, it was followed up with only limited operational support. The Somalia country team conducted a thorough diagnosis of the security sector. This was appropriate given the importance of the cost of security forces in the total government budget (security expenditure accounted for 23.2 percent of government expenditures in 2022) and the scope for corruption given cash-based salaries to soldiers. The Somalia Security and Justice Sector Public Expenditure Review (2017) was appreciated for its quality diagnosis and its support for the biometrical identification of all national security personnel. Within its expertise in PFM, the World Bank subsequently assisted the government to prepare a consolidated security budget for 2016. It also supported a digital payment system through which salaries are paid directly to soldiers.

Overall, the Bank Group made significant investments in supporting the Peacebuilding and Statebuilding Goals during the 10 years evaluated. Within the statebuilding portfolio, the Bank Group prioritized its limited resources, expertise, and political capital in the areas where it was most likely to bring about positive change. These included developing intergovernmental relations; building basic administrative capacity; developing revenue mobilization capacity; developing service delivery systems in basic health, education, social protection, water and sanitation, and urban infrastructure; and building the policy, regulatory, and investment capacity of the state to improve the business environment, lower barriers to entry, and enhance regulatory quality. Support to the security sector was highly relevant but limited to a Public Expenditure Review of the sector with little follow-up.

Effectiveness of the World Bank’s Statebuilding Interventions

The World Bank led the international effort to support public sector governance and statebuilding, in close coordination with IMF. It committed considerable resources to building state capacity, systems, and institutions, targeting core government functions with investment financing of $469.4 million over the decade FY13–22. The financing for governance accounted for almost 40 percent of development partner financing in Somalia.7 Furthermore, the World Bank’s lead and coordinating role in institution building was consistently emphasized by Federal Government of Somalia representatives, development partners, and IMF staff.

In core statebuilding areas, the results of the World Bank’s contributions were commendable relative to the challenging starting point. The efficacy of the portfolio reflects a mix of higher-performing operations (in PFM) and less effective performance (in domestic revenue mobilization and capacity injection). The Implementation Completion and Results Report Review ratings for the closed projects range from moderately satisfactory to highly satisfactory (table 3.2).

Sources: World Bank ICRs and IEG ICR Reviews.

Note: HS = highly satisfactory; ICR = Implementation Completion and Results Report; IEG = Independent Evaluation Group; MS = mostly satisfactory; n.a. = not applicable; PFM = public financial management; S = satisfactory; — = not available.

Developing an Intergovernmental Fiscal System to Support Federalism

Although there was commendable progress in intergovernmental relations, the foundational relationship between the Federal Government of Somalia and the federal member states and the allocation of resources among them remains contested. Thirty-five percent of World Bank financing operations focused on government–federal member states relations (17 out of 49 projects), as did 41 percent of analytic work (27 out of 66 ASAs). With the inflow of aid and rising domestic revenue, the federal government has been transferring more resources to the federal member states. Intergovernmental transfers from the government to eligible federal member states rose from $15.1 million in 2018 to $59.6 million in 2020, reverting to $31.6 million in 2021 before rising again to $76.5 million in 2022. The Intergovernmental Fiscal Forum, supported by the World Bank, was a valuable trust-building exercise, as it convened government and federal member states actors to discuss and agree on fiscal federalism. A fiscal transfer formula for federal grants to states based on transparent criteria allocated 60 percent of proceeds to the government and the remaining 40 percent to the federal member states, providing equal shares to each, regardless of size, poverty level, or need (World Bank 2024g). All federal member states except Puntland have agreed to this formula. During interviews for this evaluation, counterparts from Puntland cautioned against the World Bank and IMF using HIPC as a lever to push for a law on paper but not a real agreement that sticks. Other federal member states also indicated that they considered the revenue-sharing formula an interim rather than permanent arrangement and raised questions about the lack of consultation on the criteria used for allocating resources.

Negotiations on intergovernmental relations were more successful in service delivery areas such as education and health. On education, a series of ASAs, technical assistance, and lending projects (P153273, P160099, P169992, P168325) supported capacity building of the education system, including clarifying the relationship between the government and the federal member states regarding education management. On July 14, 2021, the government and education authorities of Banaadir, Galmudug, Hirshabelle, Jubaland, and Southwest officially signed the Education Cooperation Memorandum of Understanding. The agreement ensures that the Ministry of Education, Culture, and Higher Education will develop the regulatory framework, and each federal member state will establish its own state-level education laws and policies. A permanent intergovernmental forum for education has been formalized.

Building Domestic Revenue Mobilization Capacity

Despite improvements, domestic revenue mobilization remains extremely low. The tax-to-GDP ratio increased from a low base of 1 percent in 2013 to 3.2 percent in 2022, which is extremely low even when compared with Sub-Saharan countries (18 percent). In a positive trend, between 2013 and 2022, the share of revenue from inland revenue rather than customs increased from 15 percent to 53 percent, reducing the extreme reliance on trade taxes (table 3.3).

Bank Group support for domestic revenue mobilization has contributed to the adoption of policies and improved systems for customs revenue and inland revenue. Its support, in conjunction with IMF, the United Kingdom, and other donors, for efforts to improve the efficiency of customs revenue and administration and harmonize customs revenue policies across ports within various federal member state jurisdictions is making progress despite some political resistance (World Bank and IMF 2020). The customs regulations on valuation and declarations were issued in September 2022, and the ad valorem tariff schedule was enacted in June 2022. The World Bank supported the mobilization of inland revenue through the introduction of turnover taxes;8 the introduction of a spectrum fee for telecom operators; the regular publication of a statement of tax exemptions; the operationalization of point-of-sale machines in the tourism sector; and the automation of Taxpayers Identification Numbers issuance and revenue receipts. The World Bank did not support measures related to broadening the tax base, for instance to the productive sectors.

Sources: Federal Government of Somalia (https://revenuedirectorate.gov.so/sites/default/files/pdf/Annual%20Report.pdf) and the United Nations University World Institute for Development Economics Research.

Note: n.a. = not applicable.

Nevertheless, domestic revenues remain far from adequate to support core state functions and the ability of the government to deliver services, yet the continued availability of such funding is uncertain. Somalia is likely going to depend on grants to fund government budgets for years to come. In 2022, 64 percent of government expenses were funded by grants. Accordingly, increasing revenue mobilization will be critical for the government’s ability to perform core state functions, fund development priorities, and ensure service delivery. World Bank diagnostics emphasize the need for the government to “continue efforts to contain the wage bill, while also managing security costs in a context of the planned withdrawal of African Union peacekeeping forces” (World Bank 2024c, xi).

Building Public Administration Capacity, Particularly the Public Financial Management System

The World Bank contributed to improved capacity in PFM systems, reporting, and transparency. Within building public administration capacity, the World Bank focused much of its support on the implementation of a framework for PFM. It targeted several institutions for capacity building, including the Ministry of Finance, central bank, Auditor General’s Office, and Accountant General’s Office in the government, and select institutions in the federal member states, with an initial focus on Puntland (box 3.1).

The World Bank’s PFM interventions established new systems, increased accountability and transparency, and improved human resource capacity. First, the World Bank deployed a programmatic approach with three aspects—Recurrent Cost and Reform Financing operations, PFM projects, and the Capital Injection Project. These complementary interventions provided technical support, an incentive for reform, and recruitment of personnel for selected federal ministries and central agencies. Second, the World Bank deliberately chose to disburse the Recurrent Cost and Reform Financing funds through the country’s own financial management system as it was being built. The approach eschewed the usual practice of channeling resources through nongovernmental organizations (NGOs) or dedicated project implementation units (PIUs), which neither develops the PFM system nor enhances government legitimacy. Third, to mitigate risks associated with large-value concessions and procurement, the World Bank provided technical assistance to the Financial Governance Committee. The Financial Governance Committee comprises international donors (the European Union, IMF, and African Development Bank) and government institutions. It provides technical advice on government procurement contracts worth more than $5 million. Though without formal power, the Financial Governance Committee’s advice has led to renegotiation of major government contracts. Through this, the Financial Governance Committee has been able to set priorities, inform policy making, and shore up past reforms (World Bank 2019c).

Beyond the PFM system, the World Bank also helped the government establish core laws, policies, and systems for economic management and service delivery, though evidence of their effective implementation is lacking. During the evaluation period, the World Bank, with support from other partners, helped the country draft and enact the PFM Law, Revenue Act, Revenue Administration Law, Anti-Corruption Law, Company Law, and Civil Service Law (World Bank 2023e).

Recurrent Cost Financing

Recurrent Cost and Reform Financing has been an effective tool to support funding and build the capacity of state institutions. Recurrent Cost and Reform Financing was provided with significant budget support, totaling $350 million between FY15 and FY22. The government and the federal member states had to meet disbursement-linked criteria related to systems building and improved capacity of ministries to receive financing from Recurrent Cost and Reform Financing II, which provided a strong incentive for PFM reform. Recurrent Cost and Reform Financing strengthened resource management, built a system for fiscal transfers, and improved intergovernmental relations. Most importantly, Recurrent Cost and Reform Financing showed that it was possible to work with government systems in Somalia rather than having to take the off-budget approach taken by most international development partners. This helped strengthen the Somali state and increase its legitimacy (World Bank 2023e).

Under Recurrent Cost and Reform Financing, the share of the civil wage bill financed by the government grew from a baseline of 40 percent in 2018 to 84 percent in 2022, falling just short of the target of 87.5 percent by the end of 2022 (World Bank 2024f). Two hundred and five persons, almost 30 percent of whom were female, were appointed to critical staff positions in the government and Puntland. Staff retention, measured as staff still in their position after one year, remained well above the 75 percent target in the government and Puntland, and the percentage of civil servants being paid on time increased from 8 percent in 2018 to 75 percent by end-2020 (World Bank 2024f).

Since Somalia has achieved IDA eligibility, the World Bank has shifted toward policy-based lending. Recurrent Cost and Reform Financing’s nimble approach supported discrete steps of building systems and state capacity paired with financing is a viable approach in FCV settings. Its disbursement-linked indicators incentivized reforms and allowed for setting ambitious targets, in the knowledge that if some targets were not met, disbursement of the majority of commitments would still be possible. However, its financing support is less fungible since is it only supporting recurrent spending. DPOs are more frequently focused on policy-level reforms and on enacting legal frameworks and are not FCV specific. Their financing support is fungible and can be used for government recurrent or investment spending.

Sustainability of the World Bank Statebuilding Interventions

The sustainability of building and enhancing core institutions and systems faces significant risks and challenges. We assessed sustainability by examining risks to achievements at the project, institutional, and country levels based on documentary evidence, interviews, and focus groups. Half of the validated Implementation Completion and Results Report Reviews note significant risks to project outcomes, which IEG corroborated through stakeholder interviews. Technical assistance and training programs under the Capacity Injection Project are funded by development partners, so sustainability is at risk once those programs end. Stakeholders noted the turnover of high-level staff as a risk to sustainability.

Higher-Level Outcomes of Statebuilding Support

The Somali state has transformed and is stronger than it has been for 30 years but still lacks important attributes of a functioning state. With contributions from the World Bank, IMF, and other donors, the country has made strides in building institutions and a federal structure, enhancing capacity and systems for transparency and accountability, and increasing domestic resource mobilization, even though resources are at a low level. An example of a positive trajectory has been the transition of power that occurred twice over the past decade, even though it involved a temporary impasse between political groups. In many respects, progress on statebuilding is tenuous and subject to reversals (World Bank 2024c). Statebuilding remains a work in progress that requires continued engagement.

Perception surveys indicate that World Bank support to statebuilding has been more effective than support to other sectors or thematic areas. The 2021 World Bank Opinion Survey, involving 164 stakeholders, ranks the World Bank’s effectiveness in public sector governance and reform highest among development areas, with a mean rating of 6.8 on a scale from 1 (not effective at all) to 10 (very effective). Stakeholders thus rank the World Bank’s work in statebuilding as more effective than in any other area, including health, social protection, urban development, and job creation and employment. At the same time, respondents pointed to weaknesses in the capacity and resilience of the state, of which the biggest related to security, political uncertainty, weak institutional capacity, and accountability. Feedback from Somali citizens also reflected on the incremental improvements they had witnessed over the past decade, attributing this progress to what they described as crucial collaboration by the government and the World Bank, especially in urban services and infrastructure.

Despite progress in building state capacity, global governance indicators such as the Bank Group’s Country Policy and Institutional Assessments shows only slight progress over the past decade (figure 3.2). The Country Policy and Institutional Assessment measures the extent to which a country’s policy and institutional framework supports sustainable growth and poverty reduction. The index for Somalia shows a slight improvement over time, while remaining well below comparator countries in Sub-Saharan Africa, mainly because of enhancements in structural policies (trade, financial sector) rather than in public sector management and institutions, where most of the statebuilding support was concentrated. The most recent Country Policy and Institutional Assessment identifies weaknesses in limited progress in judicial reform, low trust in the formal court system, corruption, weak executive accountability, and lack of competition hindering business operations (World Bank 2023a).

The results frameworks for the Somalia CPF and individual operations lacked suitable indicators to track progress beyond outputs or intermediate outcomes, which could provide links to broader statebuilding outcomes and impacts on FCV, such as stabilization, resilience, and peacebuilding. World Bank operations do not identify links or causal relationships between portfolio-level outcomes and the achievement of strategic objectives well. Identifying and tracking more granular indicators to capture progress could bridge project-level output or intermediate outcome indicators and global governance indicators.

Figure 3.2. Somalia’s Country Policy and Institutional Assessment Scores

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Figure 3.2. Somalia’s Country Policy and Institutional Assessment Scores

Source: World Bank 2023a.

Note: CPIA = Country Policy and Institutional Assessment; IDA = International Development Association; SSA = Sub-Saharan Africa.