Domestic revenue mobilization remains Somalia's biggest fiscal challenge, limiting the ability of the East African nation's government to finance development priorities and public services. Domestic revenue reached 6.3% of gross domestic product in 2025, compared with 15%-17% among peer countries, according to a World Bank report. Total revenue was 11% of GDP in 2025 when budget grants are included. The federal government collects about 71% of domestic revenue, while member states have responsibilities for frontline service delivery. The country comprises federal member states, the Banaadir Regional Administration covering the capital, Mogadishu, and Somaliland, a de facto independent state.
"Revenue performance is constrained by a narrow and inefficient tax system that generates only about 5% of GDP in tax revenue, well below peer countries, and remains heavily dependent on customs duties and other indirect taxes," according to the report. "Fragmentation in the fiscal federal system creates opportunities for revenue leakage and constrains the development of an efficient national tax system." With an estimated population of about 19 million people, Somalia is one of the world's most aid-dependent countries, with external grants and remittances accounting for nearly half of economic output in 2025.
While Somalia has made important progress in rebuilding its fiscal institutions, restoring macroeconomic stability and strengthening public-financial management, significant challenges remain. Spending on health is around 0.2% of GDP and about 0.5% for education, among the lowest globally. "Fiscal space is narrowing as external assistance declines, while development and security needs remain substantial," the report said. "Security spending absorbs a large share of scarce domestic revenues, limiting resources for education, health, social protection, and infrastructure."
Recommended reforms include improved customs valuation, effective implementation of tax reforms, proactive management of fiscal and debt risks, and a shift to concessional borrowing rather than reliance on increasingly scarce grants. According to World Bank simulations, reforms could increase output by 9.3 percentage points and raise domestic revenues by 6 percentage points, while reducing poverty by 6.3 percentage points to 47.2% by 2033. Real GDP growth slowed to 3.1% last year, compared with 4% in 2024 and 4.2% in 2023.
Source: Bloomberg Markets · Summarized by HeadlinesBriefing