When Somalia's Parliament approved the 2025 federal budget in November 2024, it signed off on spending of about USD 1.32 billion. The government expected to raise USD 429 million of that itself, through taxes, customs and fees. The other USD 870 million, roughly two-thirds of the budget, was to come from foreign donors.
A government that raises a third of what it spends depends, every year, on decisions made in Washington, Brussels, and a handful of other capitals. The spending is committed in advance; the money to cover most of it is not guaranteed until it arrives. In January 2026, Somalia got a short, sharp reminder of how conditional that money is.
On 7 January, the United States, historically the largest single source of assistance to Somalia, suspended all aid to the federal government over a dispute about an alleged seized food-aid shipment in Mogadishu. The freeze lasted about three weeks before Washington agreed to resume food distribution, while saying it would keep reviewing its broader support. Total US assistance to Somalia, most of it humanitarian aid channelled through the United Nations and aid agencies rather than paid directly to the government, ran to roughly USD 1.2 billion in the 2023 US fiscal year and about USD 420 million in 2024. The episode was resolved quickly, but it showed that the single largest backer of Somalia's finances will withhold money over a political dispute, with little warning.
The 2025 budget held together regardless, because other money arrived to cover the gap. The largest single contribution came from the World Bank, which approved a USD 125 million grant in August 2025, its second such operation in two years. Smaller budget-support commitments came from the European Union, at about USD 10 million, Türkiye, at USD 7.5 million, and the United Arab Emirates, at USD 2.8 million, according to the financing commitments the IMF recorded for the year ahead. Separately, donors funded programmes outside the core budget, including a USD 112 million World Bank social-protection project and a EUR 102 million EU package for education and infrastructure signed in early 2026. By the IMF's account, Somalia closed 2025 with a deficit of about 0.3 percent of GDP, broadly in line with the plan. The gap was covered by the same donor dependence the budget is supposed to be moving away from.
Despite this, domestic revenue has been climbing. The USD 429 million budgeted for 2025 is up 24 percent on the USD 346 million of 2024, and collection has grown more than tenfold since 2012. According to the IMF, the new income tax law has contributed to the rise. The Income Tax Act 2025 (ITA 2025) came into force on 11 May 2025, together with the Income Tax Regulations 2025, replacing the direct-taxation regime that had operated under Law No. 5 of 1966. Collection is administered through the Inland Revenue Department, anchored to a taxpayer identification number and a digitised revenue-management system that narrows the room for under-declaration.
How much the new law has actually widened the tax base is not yet possible to say. The Act took effect only in May 2025, and the government has not published income-tax figures broken out for the period since, nor data on how many new taxpayers it has brought into the system. The IMF reported that income tax collection was strong in 2025 and linked it to the new law, but it published no figures isolating how much of the gain the law itself produced. For now, the claim that the reform is working rests on the assessment of the government and its lenders, ahead of the data that would confirm it.
Set against the economy, the scale of the shortfall is clearer. Domestic revenue of USD 429 million against a GDP the IMF puts at roughly USD 13.9 billion is around 3 percent, and tax revenue alone is below that. The most recent internationally comparable figures, the OECD's Revenue Statistics in Africa, which run only to 2022, put Somalia's tax-to-GDP ratio at 2.6 percent that year, the lowest of the 36 African countries measured, against an average of 16.0 percent. Its neighbours sat far above it: Ethiopia at 4.5 percent and Kenya at 16.8 percent in the same year. Somalia's ratio has risen from 1.1 percent in 2013, but it remains a fraction of the regional norm. Around 70 percent of what the government collects still comes from duties on imported goods, leaving the revenue base narrow as well as small, and exposed to anything that slows trade through the ports.
The plan, agreed with the IMF, is for Somalia to cover its operational costs, mainly public-sector salaries, from domestic revenue by 2027. With domestic revenue still around a third of total spending and donor funding tightening, the 2027 deadline is arriving faster than the revenue needed to meet it.
What fills the gap sits largely outside the budget. Remittances sent home by the Somali diaspora are estimated at more than USD 2 billion a year, more than the entire federal budget, and both the Central Bank of Somalia and the IMF describe them as the country's largest single source of external finance. The state's own contribution to financing itself remains the smallest part. Until that changes, the budget Parliament approves each year describes what Somalia intends to spend, not what it can pay for.
Figures in this piece are drawn from the Federal Government of Somalia's 2025 budget and budget performance reports, the Somalia Income Tax Act and Ministry of Finance tax guidance, US Agency for International Development reporting, World Bank announcements, and the IMF's reviews under the Extended Credit Facility.
