CASH LIFELINE

The IMF is backing Somalia’s plan to replace tattered banknotes from civil war days.

NAIROBI: The International Monetary Fund is backing Somalia’s plans to replace tattered banknotes that were printed before the Horn of Africa nation plunged into civil war almost three decades ago.

“The new Somali shilling notes may come into circulation this year, alongside the dollar that’s been the main means of payment, and will replace fake or old currency in circulation,’’ said Samba Thiam, the IMF’s country head.

“About 98% of the currency circulating in the country is fake,” he said in an interview in Nairobi, the capital of neighbouring Kenya. “The remaining 2% is currency printed during 1990-91, still circulating, but in very bad shape.”

Somalia’s descent into anarchy began with the ouster of dictator Mohamed Siad Barre in 1991. A subsequent Islamist insurgency has hastened the destruction of its political and economic institutions, slashing annual per-capita income to $435 and making Somalia the world’s fifth-poorest country, according to the World Bank.

“Printing of the new notes, which will initially be in small denominations, is aimed at restoring the Central Bank of Somalia’s powers to set monetary policy,’’ Thiam said.

While the institution doesn’t have the money to finance the plan, donors will back the reforms and financing will be agreed on once the government decides whether it wants a floating- or fixed-rate currency regime.

“While Somalia qualifies for debt cancellation, it would have to clear arrears that are part of $5.3 billion owed to international creditors such as the IMF, World Bank and African Development Bank to secure fresh funding,’’ Thiam said.

Writing off Somalia’s loans depends on progress toward curbing corruption, introducing a new currency and an effective monetary policy in the $6 billion economy.

“There are hurdles,” Thiam said. “But there is a general willingness from creditors to write off Somalia’s debt when the time comes, it’s a good prospect. They will not be asked to repay the debt tomorrow, so they have time to work on consolidating their economic base. The debt is an issue that will be resolved some time.”

“Economic growth may slow to 2.5% in 2017 from 3.7% last year, the IMF estimates. Agriculture accounts for 40% of national output in the country whose main export is camels to Gulf Arab countries.

“Expansion will be supported by a ‘boom’ in construction, telecommunications, investments in port development and new road infrastructure. Somalia’s ‘rich waters’ also hold untapped potential for commercial fish production,’’ he said.

“The IMF is also assisting the central bank with regulation and supervision of the financial sector to open it to new investors,’’ Thiam said.

KCB Group Ltd and Commercial Bank of Africa Ltd, Kenya’s biggest and sixth-largest banks by assets, are among lenders that have applied to set up shop.

Somalia has six banks and 12 moneytransfer businesses.