Somalia’s Economic Growth Slows as Aid Cuts, Drought and Rising Prices Deepen Pressure on Households

Somalia’s fragile economic recovery is losing momentum as overlapping shocks — including declining foreign aid, worsening drought conditions, and rising living costs — weigh heavily on households, businesses, and government finances, according to a new World Bank report released today.

The latest edition of the Somalia Economic Update (SEU) 2026, titled Navigating Shocks, Powering Growth, estimates Somalia’s economic growth slowed to around 3 percent in 2025, down from approximately 4 percent during 2023 and 2024.

The report warns that real GDP per capita has remained broadly stagnant, meaning many Somalis are seeing little or no improvement in living standards despite headline economic growth.

World Bank officials say the slowdown reflects a combination of external and domestic pressures that are exposing deep structural vulnerabilities across the Somali economy.

“Somalia has made important progress in strengthening macroeconomic management and institutions under difficult conditions,” said Hideki Matsunaga, World Bank Group Country Manager for Somalia.

“However, overlapping shocks are slowing growth and putting pressure on jobs and household livelihoods, underscoring the importance of addressing key structural constraints, particularly in expanding access to reliable, affordable, and sustainable electricity.”

Aid Reductions and Drought Hit Economy Hard

The World Bank said declining international assistance has played a major role in weakening economic activity.

Somalia has long depended heavily on foreign humanitarian and security-related aid, making the economy particularly vulnerable to reductions in external funding.

The report says cuts in aid flows, combined with severe drought conditions, have reduced agricultural production, weakened household incomes, and constrained domestic demand.

Agriculture and livestock remain central to Somalia’s economy and employment, meaning climate-related shocks continue to have widespread economic and humanitarian consequences.

At the same time, rising prices for food, transport, and utilities have squeezed household purchasing power.

Consumer price inflation rose to 3.7 percent in 2025, up from 3.3 percent in 2024, driven mainly by increases in:

• Food prices

• Utility costs

• Transport expenses

The World Bank warned that inflationary pressures are likely to intensify further in the near term.

Inflation is projected to rise to approximately 6 percent in 2026 before gradually easing as economic conditions stabilize.

Poverty Reduction Stalls Amid Rising Food Insecurity

The report paints a troubling picture of worsening household welfare across Somalia, particularly among vulnerable communities already facing food insecurity and climate-related hardship.

According to the SEU, poverty reduction efforts effectively stalled in 2025 as higher food prices, drought conditions, and reduced aid combined to deepen economic stress.

The World Bank warned that food insecurity remains highly sensitive to:

• Rainfall patterns

• Global commodity prices

• Humanitarian assistance flows

• Climate shocks

Many Somali households continue to rely heavily on humanitarian support and informal economic activity, leaving them vulnerable to even modest economic disruptions.

The report says slower growth is also limiting job creation, particularly for young people in a country with one of the world’s youngest populations.

Growth Outlook Weakens Further

The World Bank’s medium-term outlook for Somalia remains subdued.

Real GDP growth is projected at:

• 2.8 percent in 2026

• 3.1 percent in 2027

However, the institution warned that risks to the outlook have increased significantly.

Key threats identified include:

• Continued reductions in aid

• Climate variability and drought

• Global commodity price shocks

• Weak productive capacity

• Energy sector vulnerabilities

The report noted that Somalia’s limited economic diversification leaves the country highly exposed to external shocks and environmental disruptions.

Diesel Dependence Fuelling Inflation and Economic Vulnerability

A major focus of the report is Somalia’s electricity sector, which the World Bank says represents one of the country’s most critical structural challenges.

Electricity generation in Somalia remains almost entirely dependent on imported diesel fuel, making the economy extremely vulnerable to fluctuations in global oil prices.

The report says international fuel price shocks rapidly transmit into higher domestic costs for:

• Electricity

• Food production

• Transport

• Household consumption

• Business operations

This, in turn, undermines business competitiveness and disproportionately affects poorer households.

“Recent global oil price shocks and the deterioration in the outlook reinforce the urgency of reducing costs for households and firms, and transitioning to more sustainable electricity generation,” the report said.

Electricity Access Remains Deeply Unreliable

The SEU includes new findings from the World Bank’s 2025 Multi-Tier Framework (MTF) Survey examining household access to electricity across Somalia.

While 71 percent of households reportedly have some form of electricity access, reliability remains a major problem.

Only 21 percent of households receive more than eight hours of electricity supply per day.

The lack of stable power supply is limiting:

• Business productivity

• Educational opportunities

• Healthcare delivery

• Economic resilience

• Industrial development

The World Bank says unreliable electricity is one of the biggest obstacles to private-sector growth and economic transformation in Somalia.

Renewable Energy and Infrastructure Investment Needed

The report calls for major reforms and investment in Somalia’s energy sector, including:

• Strengthening governance and regulation

• Expanding renewable energy investment

• Modernising transmission infrastructure

• Improving electricity distribution systems

Officials say renewable energy expansion could help reduce electricity costs, strengthen energy security, and lower the economy’s exposure to global fuel price volatility.

Somalia is considered to have significant renewable energy potential, particularly in:

• Solar power

• Wind energy

However, infrastructure limitations, financing constraints, and governance challenges continue to slow large-scale investment.

The World Bank says improving electricity reliability and affordability will be essential for supporting:

• Economic competitiveness

• Job creation

• Household welfare

• Climate resilience

• Long-term economic stability

As Somalia continues navigating multiple overlapping crises, the report concludes that sustained reforms and investment in critical infrastructure will be vital to preventing further economic deterioration and supporting more inclusive growth.