Financial Stabilization Models in Developing Economies: An Analysis of Somalia’s Economic Recovery and Macroeconomic Reform

This paper examines the financial stabilization and macroeconomic reconstruction models applied in fragile and conflict-affected states (FCAS), using post-war Somalia as a primary case study. Following decades of institutional collapse, de facto dollarization, and an unregulated parallel financial ecosystem, Somalia achieved a historic milestone by reaching the IMF and World Bank Heavily Indebted Poor Countries (HIPC) Completion Point in late 2023. This milestone wiped out billions in external debt and unlocked a structured path toward economic formalization. This study analyzes the unconventional stabilization mechanisms that kept the Somali economy afloat during statelessness—specifically diaspora remittances and mobile money platforms—and contrasts them with the formal structural adjustments implemented under the National Transformation Plan (NTP).

Macroeconomic Reform, Financial Stabilization, Somalia Economy, HIPC Debt Relief

1. Central Bank of Somalia. (2024). Annual Economic Report and Monetary Policy Review. Mogadishu: CBS. [Google Scholar] [Crossref]

2. International Monetary Fund. (2023). Somalia: Fifth Review Under the Enhanced Credit Facility Arrangement and Request for Modification of Performance Criteria. IMF Staff Country Reports, Washington D.C. [Google Scholar] [Crossref]

3. World Bank. (2024). Somalia Economic Update: Integrating Climate Change into Macroeconomic Policy. World Bank Group, Washington D.C. [Google Scholar] [Crossref]

4. Alper, A., & Demirel, M. (2021). Macroeconomic Stabilization in Dollarized Post-Conflict Economies: Lessons from Sub-Saharan Africa. Journal of Development Economics, 45(2), 112-129. [Google Scholar] [Crossref]

5. Somali Financial Intelligence Center. (2025). National Risk Assessment on Money Laundering and Terrorist Financing. FGS, Mogadishu. [Google Scholar] [Crossref]

6. East African Community. (2024). Report of the Verification Mission on the Admission of the Federal Republic of Somalia into the EAC. EAC Secretariat, Arusha.Acemoglu, D., & Robinson, J. A. (2012). Why Nations Fail: The Origins of Power, Prosperity, and Poverty. Crown Business. [Google Scholar] [Crossref]

7. Calvo, G. A., & Vegh, C. A. (1999). Inflation stabilization and BOP crises in developing countries. Handbook of Macroeconomics, 1, 1531-1614. [Google Scholar] [Crossref]

8. Central Bank of Somalia. (2024). Annual Economic Report and Financial Sector Review. CBS Publications. [Google Scholar] [Crossref]

9. International Monetary Fund. (2023). Somalia: Fifth and Sixth Reviews Under the Extended Credit Facility and Request for Three-Year Arrangement. IMF Staff Country Reports. [Google Scholar] [Crossref]

10. North, D. C. (1990). Institutions, Institutional Change and Economic Performance. Cambridge University Press. [Google Scholar] [Crossref]

11. Overseas Development Institute. (2024). Pursuing macro-financial stability in a dollarised and fragile context: Somalia’s reform path. ODI Insights. [Google Scholar] [Crossref]

12. Alper, A. M., Ananthakrishnan, P., Davies, G., El-Ashram, A., Jidoud, A., & Sarr, B. (2025). Macroeconomic challenges of structural fragility: Designing monetary and fiscal frameworks for post-conflict recovery. IMF Staff Discussion Notes, No. 2025/003, 1–45. [Google Scholar] [Crossref]

13. Central Bank of Somalia. (2025). Financial Sector Development Project (FSDP): Core banking infrastructure development and macroprudential supervision framework review. Mogadishu: Central Bank of Somalia Treasury Publications Repository. [Google Scholar] [Crossref]

14. Mohamed, A. A., & Abdulle, M. H. (2025). Government recurrent spending, capital accumulation, and long-run economic growth dynamics in post-conflict environments: An ARDL bound-testing estimation for Somalia. Environmental Science and Policy Series, 4(2), 147–158. [Google Scholar] [Crossref]

15. World Bank. (2025). Somalia Economic Update, December 2025: Strengthening Macroeconomic Credibility, Financial Integration, and Regional Alignment post-HIPC. Nairobi: World Bank Group East Africa Section. [Google Scholar] [Crossref]

16. Ahmed, A. A., Mohamed, K. A., & Popogbe, O. (2025). The impact of demographic factors on economic growth in Somalia. Cogent Economics & Finance, 13(1), 2559047. doi.org [Google Scholar] [Crossref]

17. Central Bank of Somalia. (2025). Financial Sector Development Project Framework and Banking Supervision Review. African Development Bank Report Repository. afdb.org [Google Scholar] [Crossref]

18. Hassan, M. S., & Warsame, I. A. (2025). Exploring the impact of domestic investment on economic growth in fragile states: Evidence from Somalia. Journal of Post-Conflict Development, 11(2), 2499017. doi.org [Google Scholar] [Crossref]

19. International Monetary Fund. (2026). Macroeconomic challenges of fragility and policies for stability and growth. IMF Staff Discussion Notes, 2026(003), A001. doi.org [Google Scholar] [Crossref]

20. Mohamed, A. A., & Abdulle, M. H. (2025). Government spending and economic growth dynamics in post-conflict environments: An ARDL estimation for Somalia. Environmental Science and Policy Series, 4(2), 147-158. doi.org [Google Scholar] [Crossref]

21. Mohamed, F. O. (2026). Post-HIPC debt relief and the strategic role of Islamic finance in sustainable investment and growth: Somalia's economic reawakening. Journal of Islamic Macroeconomics, 14(1), 399750. researchgate.net [Google Scholar] [Crossref]

22. World Bank. (2026). Somalia Economic Update, May 2026: Strengthening Macroeconomic Credibility and Regional Integration. World Bank Group Open Knowledge Repository. worldbank.org [Google Scholar] [Crossref]

• The Correlation of Marketing Strategies and Financial Performance of Motor Parts Businesses in the City of Mati
• The Role of Blockchain-Based Smart Contracts in Enhancing Financial Transparency and Efficiency in the Emerging Market
• Exploring Intention among Universiti Teknologi Mara Terengganu Community to Donate into Education Waqf Fund
• Utilizing AHP Method to Rank Preference of Waqf Fund Usage for UiTM Terengganu, Malaysia
• The Influence of Portfolio Diversification on Financial Performance: Evidence from Listed Banks on the Ghana Stock Exchange