Somalia's economy: live herds, money from abroad and no new banknote since 1991

What the Somali economy lived on before the collapse

The Somali coast traded by sea for centuries before the republic existed. In the 16th century Duarte Barbosa recorded ships from Cambaya in India arriving at Mogadishu with cloth and spices and leaving with gold, wax and ivory, and the city wove a cloth of its own, toob benadir, for markets that reached Egypt.

Under the Italian trusteeship the south came to depend on bananas. A report commissioned by the Italian foreign ministry in 1953 warned that the trust administration was making the economy entirely reliant on banana exports.

The civilian governments of the 1960s ran a deficit every year and leaned on foreign aid, and one report of the period called the republic a "graveyard of aid schemes". After the coup the military government recorded the first budget surplus in 1971 and doubled tax revenue between 1970 and 1975, by the account in Wikipedia's economic history. It nationalised industry and land, then opened a commercial complex of more than 100 shops in 1972 for private traders, and by 1980 every price control had gone. After cereal marketing was freed, sorghum went from an average of 139,000 tonnes in the 1970s to 260,000 tonnes by 1985, and maize from 107,000 to 280,000 tonnes.

The war took the institutions with it. Within two years of the outbreak of civil war in 1988, the World Bank later wrote, the state's institutions had collapsed and "most of the economic and social infrastructure and assets were destroyed". Somali Airlines suspended all its operations in 1991, the year the telephone network was destroyed.

What came next is argued over. The economist Peter Leeson wrote in 2007 that 14 of 18 development indicators were better in 2000 to 2005 than in 1985 to 1990, and that the collapse of what he called a predatory state had improved welfare. Ersun Kurtulus replied that the case came from a liberal theory of the state and was not backed by any quantitative analysis linking predation to welfare.

How money moves without a national currency

Why the shilling in circulation is not the bank's

The Central Bank of Somalia states in its annual report for 2024 that it has not issued any currency since 1991, and that the country has become "a de facto dollarized economy". The bank was re-established in 2009, and the Central Bank Act, Law No. 130 of 22 April 2012, makes it the sole issuer of legal tender Somali notes and coins.

The shilling notes that change hands are old ones and counterfeits. Wikipedia describes the stock in circulation as currency "introduced by the private sector", and the bank's own report speaks of "a proliferation of counterfeit currencies" over three decades. The BTI's 2026 country report found only a few shilling notes still in use, mostly for small payments made face to face, with digital transfers doing the work notes once did.

The rate still moves. The bank's average for 2024 was 28,118 shillings to the US dollar, a depreciation of 3.3% from 27,225 in 2023.

How hawala firms and mobile money replaced banks

When the state banks collapsed in 1991, private money transfer companies, the hawala, became the only financial institutions connecting Somalia with the rest of the world, in the BTI's description. They worked on trust and control inside lineage groups and went unregulated until 2014. After the attacks of 11 September 2001 they were accused of supporting Islamist networks, and the BTI's 2026 report counts 16 of 35 companies whose British bank accounts were closed over the previous decade.

Mobile money reaches far more people than the banks do. By World Bank estimates cited in the 2026 BTI report, fewer than 20% of Somalis use formal banks and fewer than 10% hold an account of their own, while about 90% use mobile banking.

The regulated sector is growing from a small base. In 2024 the central bank licensed 13 domestic commercial banks, one foreign bank branch, 15 money transfer businesses and five mobile money operators. Bank assets reached US$2,020 million at the end of 2024, up 13% from US$1,795 million a year earlier. The national payment system linking the banks processed 1,277,216 transactions worth US$1,939 million in 2024.

What the money sent from abroad pays for

Somali households spend more than the economy produces. The Somalia National Bureau of Statistics put GDP at US$11,966 million in current prices for 2024 and household consumption at US$15,961 million, or 133.4% of it. Imports of goods and services came to US$11,861 million that year, 99.1% of GDP, and exports to US$3,735 million. The bureau's reading is that remittances and grants financed the extra consumption and that imports met most of the extra demand.

The difference arrives from outside the definition of output. Gross national disposable income, which adds net income and transfers from abroad, was US$18,226 million in 2024, about half as much again as GDP. The bureau's GDP per head, US$737 in 2024 against US$694 in 2023, divides by a population taken from a 2014 survey estimate and grown at a fixed 2.8% a year.

The central bank counts the inflow two ways. Its balance of payments records US$7,424.1 million of secondary income received in 2024, which it calls remittance receipts. Its separate count of inward transfers came to US$6,230 million, 52% of GDP, up 10% from US$5,669.8 million in 2023. Within that, personal remittances rose 25% to US$2,719.1 million, business transfers more than doubled to US$2,315.2 million and transfers to NGOs eased to US$1,007.2 million. The central bank attributes the fall in unclassified SWIFT transfers in 2024 to their reclassification into the other categories. By its estimate the inflows paid for about 80% of the deficit on goods and services that year.

What the transfers buy is mostly imported. Goods imports reached US$9,179.74 million in 2024, 32% more than the US$6,955.46 million of 2023, and food imports alone came to an estimated US$2,517.71 million. Food and housing take more than 72% of household budgets, food alone 55.5%, by the central bank's 2024 report. The current account deficit widened to 14% of GDP in 2024 from 12% in 2023. China, India and Türkiye were the main sources of goods in 2024.

Why live animals make up most Somali exports

Herding is the base of what Somalia sells. Britannica describes about three-fifths of the population as nomadic pastoralists or agropastoralists, and their herds are goats, sheep, camels and cattle.

Livestock made up about 62% of exports in 2024 by the central bank's count, worth US$969.9 million against US$860.8 million in 2023. More than 6.4 million head left the country in 2024, over 5.9 million of them goats and sheep, with 291,692 cattle and 212,616 camels. The buyers are in the Middle East. The United Arab Emirates, Oman and Saudi Arabia were Somalia's main export destinations in 2024, and the bank reports sales spreading beyond Saudi Arabia and beyond the season of the Hajj.

The share of herding in output is less certain. The statistics bureau measures GDP from the spending side only, and says a production-side estimate awaits an establishment survey and an agricultural census scheduled for 2026. Other estimates diverge widely. The central bank's 2024 report puts livestock at about 9% of GDP, and the BTI's 2026 report puts agriculture, mainly livestock, at no less than 60%.

How herds reach markets across the Gulf

Burao and Yirowe in Somaliland handle livestock from across the Horn of Africa, and many of the sheep and goats sold there are shipped to the Gulf through Berbera.

Agriculture was still recovering in 2024 from the drought of 2021 and 2022, by the central bank's account, and the IPC analysis of September 2026 found pastoral areas short of milk after further dry spells in 2025 and early 2026.

What the rivers and the coast still yield

Irrigated farming depends on the floodplains of the Jubba and the Shabelle, the only rivers in Somalia that run all year, with 90% of their flow coming from Ethiopia. Before the government collapsed in 1990, more than 220,000 hectares along them were irrigated or farmed as the floods receded, growing maize, sesame, fruit and vegetables for local sale and sugarcane and rice for export as well. The irrigation works fell into ruin afterwards through vandalism and lack of maintenance. Southern cereal output for the Gu season of 2024 was estimated at 64,400 tonnes, 25% below 2023, though the bureau recorded a surge in exports of crops and vegetable oils that year.

Fish exports brought in US$76.8 million in 2024, along a coastline the central bank gives as about 3,333 kilometres. Most reports in 2015 put annual landings at about 30,000 tonnes, when one study found 110,000 tonnes caught each year in Puntland alone, much of it sold at sea to Yemeni traders. Charcoal shipped through Kismayo was an early source of income for al-Shabaab, and the United Nations banned imports of Somali charcoal.

Who supplies power and builds the cities

Since 1991 electricity has been a private business. About 55 private providers supply more than 90% of the power, most of them running off-grid systems and managing their own generation and distribution without national coordination, and around 90% of the power comes from diesel generators. It cost about US$0.61 a kilowatt-hour on average in 2023. Access rose from 15% of the population in 2012 to about 61.9% in 2024, 80.1% in towns and 39.4% in the countryside, mainly through private diesel mini-grids.

Every petroleum product is imported through private traders and regional suppliers, and no oil was produced in Somalia as of 2026. A Petroleum Law adopted in 2020 opened offshore blocks to foreign companies and set up the Somali Petroleum Authority.

Building takes much of the money from abroad, by the BTI's account. Fixed investment grew 21.1% in real terms in 2024 after 14.5% in 2023 and reached 26.7% of GDP, with construction growing fast and drawing on largely imported materials, by the bureau's account. Bank lending for real estate rose 45% to US$110.9 million in 2024. The mayor's office in Mogadishu counted more than 6,000 new buildings in the city between 2020 and 2025, and a steel works making reinforcing bar from recycled metal opened there in November 2025. The BTI's 2026 report notes that Somalia has no functioning land registry and that forced evictions in Mogadishu remain numerous.

Firms are small and mostly informal. The 2019 labour force survey found 83% of employment in the informal sector. In 2025 the World Bank counted formal establishments as about 28% of all businesses, nearly 97% of them employing between one and nine people, with 31% located in Mogadishu.

How the federal government raises its revenue

The federal budget is small beside the money that moves privately. In 2024 the Federal Government of Somalia collected revenue and grants of US$912.7 million, 88% of the US$1,040.8 million budgeted, and spent US$905.2 million. Domestic revenue came to US$369.4 million, up 12% from US$329.5 million in 2023, of which taxes were US$267.0 million, and external grants supplied US$543.4 million. A 5% sales tax on goods took effect in August 2024.

Recurrent spending made up 97% of the total in 2024. The BTI's 2026 report puts domestic revenue at only about 2.3% of GDP on average even though it nearly doubled between 2017 and 2022, and estimates security spending at about US$1.5 billion a year, most of it paid by international partners. The IMF mission of September and October 2026 projected an overall deficit of 0.9% of GDP for 2026 and asked for one sales tax across the federal government and the states.

Al-Shabaab collects taxes as well. In 2020 the Hiraal Institute estimated that al-Shabaab collected at least US$15 million a month, on a scale similar to the government's, and that more than half of its revenue in 2019 and 2020 came from Mogadishu, where major companies paid it 2.5% of their annual profits. The group frames its levy on traders, farmers and herders as zakat, and the BTI's 2026 report records that refusal to pay is usually followed by threats.

What debt relief cleared and what is still owed

On 13 December 2023 the IMF board approved Somalia's completion point under the Heavily Indebted Poor Countries Initiative, a day after the board of the World Bank's International Development Association, for debt service savings of US$4.5 billion. Of the relief, bilateral and commercial creditors provided US$3.0 billion and the IMF US$343.2 million, and external debt fell from 64% of GDP in 2018 to less than 6% by the end of 2023. Somalia met thirteen of the fourteen floating triggers, and the IMF board waived the last, a single import tariff schedule for all ports.

The Paris Club wrote off nearly 99% of eligible bilateral claims, and the United States cancelled US$1.14 billion in November 2024. At the end of 2024 the external debt stock was US$1,515.36 million, about 12% of GDP. Multilateral creditors held US$685.10 million of it, chiefly the Arab Monetary Fund, the Arab Fund for Economic and Social Development and the IMF, and Spain and Russia were the only Paris Club creditors left. A large part of the stock remained in arrears in 2024, the bank reports, chiefly to creditors outside the Paris Club and some multilateral lenders, which together hold roughly 69% of it.

A three-year arrangement under the IMF's Extended Credit Facility, approved in December 2023, runs to December 2026, and the fourth review was completed in December 2025. The World Bank's portfolio in Somalia stood at US$2.34 billion in 2026, and its Baxnaano cash transfer programme had reached 4 million people.

How Somaliland runs its own money and port

Somaliland's government declared independence at a conference in Burao that ended in May 1991, and the federal government counts the territory as part of Somalia. On 26 December 2025 Israel became the first UN member state to recognise it.

The territory runs its own monetary institutions. The Bank of Somaliland, established under its constitution in 1994, regulates the Somaliland shilling, which cannot easily be exchanged outside the territory because of its lack of recognition. The BTI's 2026 report finds its economy largely dollarized, as in the rest of Somalia, with mobile money replacing notes. Telesom launched the ZAAD mobile money service there in 2009.

The port of Berbera and the airports are the only enterprises the Somaliland state owns, by the BTI's account. Somaliland agreed with DP World of Dubai in 2016 to develop and manage the port, and the BTI dates the 30-year concession to 2017. The Berbera Economic Zone opened in 2023 and the road corridor to the Ethiopian border has been completed. In January 2024 Somaliland agreed to lease Ethiopia about 32 kilometres of coastline and access to Berbera for 50 years in exchange for formal recognition, by the Council on Foreign Relations' account, and the federal government condemned the agreement.

Somaliland's government reported GDP of roughly US$7 billion in 2022, most of it received as remittances, by the same account, and the territory cannot borrow from the World Bank or the IMF while it is neither recognised nor reconciled with Somalia. The federal statistics bureau builds its consumer price index from the Mogadishu and Hargeisa indices together. Puntland, estranged from the federal government, announced in 2024 that it intended to print a currency of its own.

Why the new shilling is still waiting

The central bank plans to bring back a shilling of its own under a currency board. Through the Kalkaal currency exchange project it is preparing to replace old and counterfeit notes with newly designed ones, and the board arrangement it formally adopted would fix the shilling to a foreign currency with the monetary base fully backed by reserves, keeping the US dollar in use beside it. An IMF structural benchmark called for amendments to the Central Bank Act to go to parliament by the end of December 2025. The BTI's 2026 report notes that the replacement had not materialised during its review period. The IMF mission of October 2026 called the reform a national priority that should proceed "carefully once key prerequisites are in place".

The World Bank estimates growth at 3.1% in 2025, down from 4% in 2023 and 2024, and projects 2.5% for 2026; the IMF projects 2.3% for 2026, 2.7% for 2027 and 4% over the medium term. Inflation reached 6.7% year on year in July 2026, from 2.7% in July 2025, and the IMF expects 6.5% for 2026. Both name aid cuts since 2025 and drought among the causes.

The IPC analysis published on 23 September 2026 found 5.1 million people, 26% of those analysed, in crisis or worse levels of acute food insecurity in July to September 2026, a rise of 50% on a year earlier. The World Bank counts nearly 500,000 people entering the labour force each year against about 80,000 jobs created. Somalia became a full member of the East African Community on 4 March 2024, and the government's reforms follow its National Transformation Plan for 2025 to 2029, in the IMF's description.