Somalia at a Crossroads: Population Pressure, Poverty, and the Promise of Reform

Issue 12

This week, the World Bank published its “Macro Poverty Outlook” for Sub-Saharan Africa* as part of its Annual Meetings Reports. As I went through the data, I came across a table on Somalia. As this data was not explained in the case of Somalia, I decided to write an extended explanatory piece on the country’s unique situation. The data table for Somalia is reproduced below and explained in detail in what follows.

A decade of progress but interrupted by shocks

Somalia’s macro-economic story over the last decade is one of hard-won progress punctuated by repeated shocks. After averaging almost 5% real GDP growth in the early 2010s, output slowed to barely 2% just before the pandemic, as drought, conflict, and locust infestations battered agriculture and livestock. COVID-19 then pushed the economy into a 2.8% contraction in 2020. Since then, activity has recovered – growth reached 2.7% in 2023 and is projected to accelerate to 4.2% in 2024, driven by normalized rains, robust remittance-financed consumption, and donor-funded capital spending. Yet with the population expanding at 3.5–4% annually, per-capita growth remains anaemic – barely 1% in 2023 and trending close to zero thereafter. Living standards, in effect, are standing still.

Inflation, dollarisation, and weak gains

Inflationary pressures that spiked during the 2022 food-price surge are easing but remain elevated for poor households. Average consumer-price inflation fell from 6.8% in 2022 to 6.2% in 2023 and is expected to decline gradually to 5.5% in 2024. Somalia’s de-dollarisation drive is still nascent, meaning global price shocks pass through rapidly to domestic markets. A fragile security environment also keeps transportation costs high.

The nominal exchange rate is effectively fixed at 1 US dollar per “new Somali shilling”, but the real effective exchange rate (REER) has appreciated to 110 in 2024 (vs. a 2015 base of 100), eroding competitiveness for non-traditional exports.

Debt relief and fiscal discipline

Somalia has made remarkable progress on public debt. Thanks to prudent fiscal management and the Heavily Indebted Poor Countries (HIPC) initiative, general-government debt fell from 52% of GDP in 2020 to an estimated 9% in 2024. Domestic revenue collection peaked at 7.1% of GDP in 2022, supported by new excises and better customs administration. However, sustaining this trajectory will require completing HIPC triggers – especially public financial management and domestic revenue mobilisation reforms, while resisting pressure for new borrowing.

External accounts: A structural weakness

Despite gains, Somalia’s external position remains very weak. Merchandise imports exceed 60% of GDP, driven by humanitarian inflows and an undiversified supply base. Exports account for barely 10% of GDP, and the services balance remains in deficit. The current-account deficit hovers near 10% of GDP, financed by grants, remittances, and foreign direct investment (FDI). But any disruption in these inflows or a climate-induced spike in food imports could strain the balance of payments.

Zooming in: Population, poverty, and social fragmentation

A demographic surge with limited absorption

Somalia has added roughly one million people every 18 months, rising from 14.3 million in 2016 to nearly 19 million in 2024 and is expected to hit 20 million in 2025. At this pace, the population will double by 2044. More than 70% of Somalis are under 30, making it one of the youngest populations globally.

Each year, 350,000 to 400,000 young people enter the job market, implying roughly 1.8 million Somalis are looking for work. Yet unemployment remains stuck at 19%, and underemployment is even higher. Many are engaged in informal, low-productivity work or have dropped out of the labour force altogether. Despite GDP growth averaging 3% annually since 2016, real per capita income has barely budged, leaving living standards stagnant.

Poverty: A shock-driven trap

Somalia’s poverty rate has remained virtually unchanged (54% of the population lives below the national poverty line), amounting to over 10 million people (from 8 million in 2017). What’s striking is that poverty in Somalia is shock-elastic: it responds sharply to crises like droughts, food-price spikes, and conflict, but barely improves with economic growth.

This is partly because growth is concentrated in urban, remittance-driven sectors like construction and services, with weak transmission to rural and displaced households. The result is a poverty trap that deepens during crises and barely recedes during recoveries.

Human development: Still at the bottom

Somalia ranks 192nd out of 193 countries on the Human Development Index. Education, health, and social protection systems remain underfunded and underdeveloped. However, there are green shoots: governance indicators are improving, and better scores on the World Bank’s CPIA index are unlocking access to concessional financing for social sectors.

Money, prices, and external accounts: The hidden constraints

Dollarization and inflation

Somalia’s economy is largely cash-lite and dollarized. Mobile money and U.S. dollars dominate transactions, but this model lacks financial intermediation. Domestic credit to the private sector is very low, meaning savings are not recycled into loans. Inflation remains a threat, especially for poor households who spend 65–70% of their income on food.

External vulnerabilities

Imports dwarf export, and the services deficit persists. Remittances and FDI help plug the gap, but foreign-exchange reserves are thin so any disruption in inflows could trigger immediate balance-of-payments pressure.

What needs to change

Somalia’s macroeconomic stability is weak but real. The challenge now is to translate it into inclusive human development. Here’s how:

1. Harness the demographic dividend

• Invest in basic education and vocational training, especially for girls.

• Expand access to reproductive health services to support fertility decline.

• Focus on sectors with comparative advantage: telecoms, fisheries, livestock, and off-grid energy.

2. Make growth more job-rich

• Prioritize rural infrastructure and digital connectivity to crowd in private investment.

• Scale up micro- and small-business financing to help informal enterprises grow into formal job creators.

3. Build a shock-responsive safety net

• Establish a national cash-transfer platform that can expand rapidly during crises.

• Use a hybrid financing model: domestic core funding plus contingency support from donors and climate-risk insurance.

4. Improve data for better targeting

• Fully fund the 2025 household survey to capture displacement and gender dimensions, enabling smarter policy design.

The bottom line

Somalia’s youth bulge could be a liability or a dividend. Without faster fertility decline and a step-change in job creation, the labour force will continue to outpace the economy’s capacity to absorb workers. But if reforms hold and security improves, Somalia could pivot from crisis management to sustained, inclusive growth.

The next five to 10 years are critical. The choices made now will determine whether Somalia’s demographic momentum becomes a source of strength or a deepening challenge.

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*World Bank. (2025). Sub-Saharan Africa: Macro Poverty Outlook—Country-by-country analysis and projections for the developing world, Spring Meetings 2025. World Bank Group. https://hdl.handle.net/10986/43252