Somalia’s Economic Growth Slows Amid Global and Climate Pressures New World Bank Group Report Finds

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Somalia’s Economic Growth Slows Amid Global and Climate Pressures, New World Bank Group Report Finds

Mogadishu/, May 19, 2026, Somalia’s economic growth slowed in 2025 as declining foreign aid, climate shocks, and rising global prices weighed on households and businesses, according to the latest Somalia Economic Update (SEU) 2026, released by the World Bank Group on Wednesday May 15, 2026. The report, titled “Navigating Shocks, Powering Growth,” finds that Somalia’s economy expanded by around 3 percent in 2025, down from about 4 percent in previous years, as reduced external support and drought conditions weakened demand and left incomes largely unchanged.

Progress Despite a Challenging Environment Despite these challenges,

Somali authorities and development partners emphasized that the country has made meaningful progress in strengthening economic management and institutions in recent years. Speaking at the launch, World Bank Country Manager Hideki Matsunaga noted: “Somalia has made important progress in strengthening macroeconomic management and institutions under difficult conditions.” He added, however, that the economy is facing increasing pressures: “Overlapping shocks are slowing growth and putting pressure on jobs and household livelihoods, underscoring the importance of addressing key structural constraints, particularly in expanding access to reliable, affordable, and sustainable electricity.” The report highlights that Somalia’s achievement of the HIPC Completion Point in 2023 significantly improved debt sustainability and restored fiscal space, helping the country maintain macroeconomic stability even amid multiple shocks.

External Shocks Reshaping the Economic Landscape

The Somali economy remains highly exposed to global developments due to its heavy reliance on imports and external financing. Deputy Minister of Finance H.E. Abdiqafar Hange emphasized that global shocks are quickly transmitted into the domestic economy: “Somalia remains particularly exposed to volatility in global energy markets and disruptions in regional trade routes these developments underscore the increasing vulnerability of import-dependent economies to global volatility.” Recent disruptions linked to global tensions have driven up fuel costs, increasing transportation and food prices, while constraining trade activity and government revenues.

At the same time, drought conditions have continued to affect agricultural production and livelihoods, worsening food insecurity across several regions.

Slowing Growth and Rising Inflation

The slowdown reflects both domestic and external pressures:

• Economic growth moderated to 3 percent in 2025

• Inflation rose to 3.7 percent, driven by increases in food, transport, and energy costs

• Growth is projected to remain subdued at around 2.8 percent in 2026, with risks tilted to the downside.

The report warns that poverty reduction has stalled, with lower aid flows and rising living costs increasing pressure on vulnerable households.

Electricity Costs: A Major Constraint to Growth

A central theme of this year’s report is the critical role of electricity in Somalia’s economic transformation. Somalia relies heavily on diesel-based electricity generation, which leaves the economy exposed to global fuel price shocks and results in some of the highest electricity tariffs globally. World Bank officials highlighted that high electricity costs are not only a sector challenge but a broader economic issue affecting competitiveness, inflation, and job creation. In his remarks at the launch, Hideki Matsunaga stated: “Electricity costs remain among the highest, heavy reliance on imported diesel exposes households and firms to global fuel price shocks, feeds into inflation, and undermines competitiveness.” The report shows that while about 71 percent of households have access to electricity, only 21 percent receive reliable supply for more than eight hours a day, limiting productivity and welfare.

Government Focus on Energy and Structural Reform

Somali authorities acknowledged the importance of addressing structural constraints, particularly in the energy sector. Deputy Minister Hange emphasized: “Electricity is not only an infrastructure challenge; it is a foundational driver of productivity, competitiveness, service delivery, and household welfare.”

He also highlighted Somalia’s renewable potential, noting that investments in solar and wind energy could help reduce costs and strengthen resilience.

Reforms Needed to Sustain Growth

The report underscores that sustaining Somalia’s progress will require accelerated reforms, particularly as external support declines. Key priorities include:

• Strengthening domestic revenue mobilization

• Improving coordination across federal and state institutions

• Expanding access to affordable and reliable electricity

• Supporting private sector development and job creation

• At the close of the event, World Bank representatives emphasized that reform momentum will be critical going forward.

Summing up the discussion, the World Bank noted: “Somalia’s progress is real and hard-won… but the policy context is becoming more demanding, not less.”

Outlook: Modest Growth, High Risks

Looking ahead, Somalia’s economic outlook remains fragile. Growth is expected to recover gradually, reaching around 3.1 percent in 2027, but remains constrained by structural weaknesses and external shocks. Risks include:

• Further decline in foreign aid • Climate shocks such as droughts and floods

• Rising global commodity prices

• Security and political uncertainties

The Somalia Economic Update 2026 presents a mixed picture: a country that has made measurable progress in strengthening economic management, but faces growing pressures from global volatility, declining aid, and structural constraints. As Somalia navigates this increasingly complex environment, the report highlights that accelerating reforms, especially in the energy sector, will be essential to unlock growth, create jobs, and improve livelihoods for the Somali people.