[{"bbox": [85, 130, 708, 162], "category": "Section-header", "text": "# 4 IMPLEMENTATION ARRANGEMENTS"}, {"bbox": [85, 195, 383, 226], "category": "Section-header", "text": "## 4.1 Financing Agreement"}, {"bbox": [97, 243, 991, 269], "category": "Text", "text": "In order to implement this action, it is envisaged to conclude a financing agreement with Somalia."}, {"bbox": [85, 283, 511, 313], "category": "Section-header", "text": "## 4.2 Indicative Implementation Period"}, {"bbox": [97, 330, 1135, 462], "category": "Text", "text": "The indicative operational implementation period of this action, during which the activities described in section 3 will be carried out and the corresponding contracts and agreements implemented, is 36 months from the date of entry into force of the financing agreement. Extensions of the implementation period may be agreed by the Commission's responsible authorising officer by amending this Financing Decision and the relevant contracts and agreements."}, {"bbox": [85, 477, 697, 508], "category": "Section-header", "text": "## 4.3 Implementation of the Budget Support Component"}, {"bbox": [85, 523, 673, 550], "category": "Section-header", "text": "### 4.3.1 Rationale for the Amounts Allocated to Budget Support"}, {"bbox": [97, 565, 1135, 697], "category": "Text", "text": "The amount allocated for the budget support component is EUR 20 000 000. No amount is foreseen for complementary support, given that the required activities are to be covered by a dedicated decision (the Economic Governance and Anti-Corruption programme), which foresees a large TA component in support of the OAGS and FGC, as well as a contribution to the IMF Somalia Country Fund for capacity development, and a grant to CSOs to strengthen the vertical accountability function in the area of fiscal and financial governance."}, {"bbox": [97, 710, 1135, 843], "category": "Text", "text": "The **foreseen yearly disbursements amounts to about 3.5% of the budgeted domestic revenues for 2023, and just 1% of 2023's total budget** (including other forms of budget support and on-budget ODA projects, mostly IDA funded). While this amount is significantly lower compared to the previous budget support operation and partly reflects resource constraints on the EU side (as a result of phasing out of the EUTF window), it is deemed appropriate in light of the country's **limited absorptive capacity and still developing PFM system**."}, {"bbox": [97, 855, 1135, 935], "category": "Text", "text": "The onset of IDA funded budget and project support by the World Bank at a very significant scale (when compared to the partner country's DRM levels), also implies that FGS financing needs to implement policy priorities and remain on track with the IMF ECF programme are also adequately addressed at present."}, {"bbox": [97, 946, 1135, 1106], "category": "Text", "text": "Currently, **public expenditures are dominated by recurrent spending, as the FGS has been re-establishing basic core state functions at the central level, and providing limited, but growing, intergovernmental transfers to the sub-federal tier of governance** (these comprised 9% of the total budget in 2021). Social spending has increased dramatically (17% of the budget in 2021), but this has been the result of channelling of IDA project grants (notably for a large social safety net programme) via country systems rather than through the creation of fiscal space induced by stronger tax performance."}, {"bbox": [97, 1118, 1135, 1225], "category": "Text", "text": "It is expected that over time, and depending on the available fiscal space, the FGS will accelerate its efforts to increase expenditures for development priorities. **Rebalancing FGS spending priorities away from central public administration towards frontline service delivery (with a focus on the education sector), is indeed one of the intended outcomes of this operation.**"}, {"bbox": [97, 1237, 1135, 1317], "category": "Text", "text": "Given the recent political and security developments in Somalia, the use of the instrument also provides an opportunity to build on a positive momentum to support authorities deliver on their commitments, whilst establishing a closer political and policy dialogue on areas of shared interest."}, {"bbox": [97, 1329, 1135, 1568], "category": "Text", "text": "The first budget support operation has to date enabled the disbursement or commitment to disburse EUR 63 million worth of Fixed Tranche (76% of total), and EUR 19.9 million worth of Variable Tranche. The latter was against an original budget of EUR 30 million i.e. about 10 million worth of Variable Tranche has been withheld as a result of failure to meet agreed indicators (out of a total of 28 yearly targets: 17 were achieved, 2 were partially achieved and 9 were not achieved). This relatively low absorption capacity can be partly ascribed to the experimental nature of the first operation of its kind in Somalia, its overly ambitious technical and policy scope (in terms of number of sectors covered), and of course the long period of political uncertainty from 2020 onwards – that came on top of the challenges brought by the Covid-19 pandemic – and led to a de facto prolonged suspension of disbursements and of the accompanying policy dialogue."}, {"bbox": [97, 1580, 1135, 1633], "category": "Text", "text": "This has informed the design of this successor operation, which is smaller and more focussed, as well as highly complementary to existing projects to drive a specific set of highly strategic reforms in the policy areas set out in"}, {"bbox": [1027, 1681, 1144, 1705], "category": "Page-footer", "text": "Page 21 of 26"}]