Toward Building Somalia’s Social Contract

Investment Rating - The report does not explicitly provide an investment rating for the industry under review Core Insights - The report emphasizes the importance of building a social contract in Somalia, focusing on state affordability, revenue mobilization, and service delivery in a nascent federal state [6][8] - It highlights that Somalia's domestic revenue-to-GDP ratio is currently the lowest in the world at 2.5%, with the state relying on official development assistance for nearly half of its budget [47][48] - The report outlines key questions for Somali policymakers regarding the type of state that can be afforded, enhancing domestic revenue, and delivering public services to increase trust in the state [47] Overview - The report discusses the challenges of state building in Somalia, particularly in the context of low tax capacity and reliance on donor funds [45][46] - It notes that the social contract is a dynamic agreement between the state and society, which is crucial for gaining legitimacy and maintaining social order [46] - The report indicates that significant progress has been made in state-building efforts over the past decade, including the adoption of a provisional constitution and the establishment of key federal institutions [47] Achieving State Affordability - The report explores the fiscal trends and challenges faced by Somalia in achieving state affordability [5] - It discusses the need for a minimal level of services to ensure state legitimacy, given the current low revenue base [47] Enhancing Domestic Revenue - The report outlines the goal of reaching a 4.5% tax-to-GDP ratio by 2030 and 9% by 2060, emphasizing the need for key revenue reforms [47] - It highlights the importance of fostering tax compliance among citizens and businesses to enhance domestic revenue [47] Delivering Services in a Nascent Federal State - The report addresses the division of labor in service delivery among national, state, and local governments [47] - It emphasizes the need for adequate resources and capacity at each level of government to effectively deliver public services [47]