The International Monetary Fund (IMF) has urged Somalia to strengthen its petroleum fiscal framework as the country prepares for increased exploration activity.
The recommendation follows a recent IMF technical assistance report, issued as Somalia anticipates offshore drilling later in 2026, driven by growing investor interest and improved security conditions.
The report highlights Somalia’s untapped hydrocarbon potential, describing the country as one of the last underexplored frontiers for oil and gas, with renewed attention following recent seismic data developments.
The Somali authorities have engaged the IMF to ensure the fiscal system can effectively balance attracting investment while securing fair returns for the state.
The IMF identified key gaps in the current system, particularly inconsistencies between older production-sharing agreements and newer legislation governing the extractive sector.
Some legacy contracts include more favourable terms for investors, such as exemptions from payments and higher cost recovery allowances, which could limit government revenue and reduce policy flexibility.
Despite these challenges, the IMF said Somalia’s overall fiscal regime remains broadly competitive compared to other emerging oil producers.
The report also raised concerns about institutional coordination, noting gaps between the Somalia Petroleum Authority and tax administration systems.
The IMF recommended clearer roles and responsibilities for institutions involved in managing petroleum revenues, warning that weak coordination could increase the risk of inefficiencies and revenue leakages.
To address this, the IMF proposed establishing a formal inter-ministerial committee to oversee petroleum policy, taxation and implementation.
The Fund also called for standardising future contracts to align with national legislation and ensuring they are awarded through transparent and competitive bidding processes.
Additional recommendations include refining fiscal terms such as state participation and reviewing profit-sharing arrangements to ensure fairness and sustainability.
The IMF said reforms are critical as Somalia approaches a pivotal moment in its economic development.
–IMF/ChannelAfrica–
