Executive Summary
Somalia ranks second globally in exposure to natural hazards and 14th in overall disaster risk; its extremely low ability to cope with recurrent catastrophes has resulted in prolonged adverse impacts on lives, livelihoods, and the economy. The frequency of droughts, floods, and other climate-related disaster events in Somalia has tripled since 1980, and the impact of these events has intensified in recent years. This trend aligns with rising temperatures and increasingly erratic weather patterns across the Horn of Africa. Somalia is also vulnerable to geophysical risks like earthquake. Limited capacity to cope with natural disasters is compounded by fragility and political insecurity. Thus disasters have devastating consequences for the Somali people and their economy, leading to loss of life, loss of livelihoods, displacement, food insecurity, and economic disruption. The agricultural sector is the backbone of the Somali economy, contributing more than 50 percent of gross domestic product (GDP) and 50 percent of export earnings, and it employs an estimated 80 percent of the country’s labor force; but it is severely exposed to climate risk. Losses arising from the 2016–2017 drought are estimated at US$3.25 billion (65 percent of GDP), with agricultural crop production and livestock hardest hit. GDP growth fell from 4.7 percent in 2016 to 2.2 percent in 2017. Prolonged drought from 2020 to 2022 resulted in a 1.7 percent decline in GDP.
The Federal Government of Somalia (FGS) recognizes the urgency of strengthening its capacity to manage the financial and economic impact of climate shocks and disasters. The need for stronger fiscal resilience is included in the country’s strategies, specifically the Somalia National Development Plan 2020 to 2024 (Ministry of Planning, Investment and Economic Development, n.d.), the Drought Impact & Needs Assessment (World Bank 2018b), and importantly the Recovery and Resilience Framework (FGS 2018) as well as the Somalia Public Financial Management Roadmap Action Plan (2021–2024) (Ministry of Finance 2021b). In addition, the World Bank Group (2024a) Country Partnership Framework has a strong climate change adaptation and mitigation agenda, and among its objectives is the establishment of national disaster preparedness and response mechanisms. This disaster risk finance (DRF) diagnostic report was prepared by the World Bank during the period from December 2023 to June 2024 in response to a request by the FGS Ministry of Finance for support in strengthening its financial resilience to climate shocks and disasters. The report provides a comprehensive assessment of (i) Somalia's climate and disaster risk profile, (ii) the economic and financial impact of past disasters, (iii) the status of DRF instruments, (iv) data and Early Warning Systems for risk-informed decision-making, along with humanitarian and other delivery channels for reaching affected populations and sectors, (v) the domestic financial sector and potential opportunities to leverage Islamic social finance, and vi) a funding gap analysis and exploration of risk-layering strategies. The diagnostic concludes by providing recommendations to the FGS and its humanitarian and development partners for strengthening the financial resilience of households, businesses, and the government against future disasters and climate shocks.
Somalia is a low-income country facing critical development challenges owing to the central government’s collapse in 1991 and a protracted civil war. The country has made progress toward stability since the establishment of a central government in 2012. However, with a GDP of US$11.7 billion in 2023 and population of 18.1 million, its GDP per capita is among the lowest globally. Protracted conflict has destroyed the economy’s productive capacity, while disrupted investments in human capacity and repeated shocks have eroded households’ assets and livelihoods. The World Bank (2018a) Risk and Resilience Assessment refers to interlinked cycles of fragility, where high vulnerability and low resilience on the one hand, and low revenue and low trust in government on the other, reinforce each other in a difficult-to-break cycle. Consequently, more than half of the population (54.4 percent as of December 2023) lives below the poverty line.7 About 40 percent of Somali households depend on remittances from abroad (World Bank Group 2019).