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Puntland State's PFM Reform

A Collaborative Journey with the World Bank

Puntland is the oldest and largest federal member state of Somalia. It has a population of 4.3 million and a GDP of around US$ 1.853 billion (2019). Puntland's collaboration with the World Bank has resulted in remarkable achievements that are transforming its public financial management landscape. Notable reforms include the following:

Financial Management Information System: Puntland's adoption of a comprehensive financial management information system (FMIS) has revolutionized financial processes, enhancing transparency, accuracy, and efficiency. This system has considerably improved budget preparation, execution, and monitoring, ensuring better financial management and accountability.

Standardized Budget Documents and International Reporting Standards: The state has successfully standardized budget documentation that provides essential information on revenue sources, expenditure allocations, and performance targets. The adoption of international reporting standards has elevated the quality and comparability of financial data, boosted the credibility of financial data, and enabled better informed decision making.

Partial Tax Identification, Tax Education, and Custom Systems: The authorities' efforts to enhance tax administration are bearing fruit. The introduction of a partial tax identification system has broadened the tax base and improved compliance. Tax education initiatives have increased awareness, resulting in higher revenue collection. Furthermore, streamlined customs systems have facilitated trade, reduced corruption risks, and contributed to a substantial increase in revenue.

Partial Single Treasury Account: The establishment of a partial single treasury account has enhanced cash management practices, minimized fund fragmentation, and improved financial control. This has led to more efficient resource utilization and better coordination of expenditures.

While Puntland's achievements are commendable, several challenges still need to be addressed to further enhance PFM performance:

Development of a Medium-Term Fiscal Framework: Puntland should prioritize the development and adoption of a medium-term fiscal framework. This strategic approach to budgeting would align fiscal policies with long-term development goals, enabling more effective resource allocation and fiscal planning.

Completion of Tax Identification Numbers and a Single Treasury Account: The authorities need to expedite the completion of the tax identification number system and establish a comprehensive single treasury account. These measures will further enhance tax administration efficiency and financial management effectiveness.

Strengthening Macroeconomic Forecasting and Analysis: Puntland should focus on strengthening its macroeconomic frameworks to support evidence-based decision-making. This includes developing robust forecasting models, improving economic data collection and analysis, and promoting economic diversification for sustainable growth.

Building Data Systems for Evidence-Based Decision Making: The authorities should invest in building robust data systems to facilitate better informed decision-making. Enhancing data collection methods, ensuring data quality and accessibility, and promoting data-driven policy formulation and evaluation are essential steps in this regard.

Advancing Institutional Structures and Capacity: Puntland should prioritize establishing a macro-fiscal office in the Ministry of Finance, and build the office’s capacity in macroeconomic forecasting, fiscal policy analysis and fiscal risk analysis. Institutional links should be established with other government departments, to ensure effective collaboration on fiscal management and policy implementation.

Conclusion: Addressing the above-mentioned challenges will be pivotal in further enhancing Puntland's PFM practices, promoting sustainable economic development, and achieving fiscal stability in the region. These substantial reforms will require close collaboration with and technical support from international development partners.