Fiscal Decentralization and Economic Growth. The Case of Mogadishu, Somalia

Abstract

With the failure of the centralized military regime and the subsequent transitional governments, Somalia adopted decentralized federal governance following the approval of a provisional federal constitution by 825 constituent assemblies representing different clans. However, the Fiscal decentralization in Somalia is in its infancy stage, and the allocation of functional assignments among the federal and state governments is yet to materialize. Therefore, the primary objective of the present study is to examine the effect of fiscal decentralization on economic growth in Mogadishu, Somalia, emphasizing the current practice and challenges. The study employed descriptive case study research that collected qualitative and quantitative primary data through an online mixed questionnaire and structured interview guide with the target population and analysed with due process. The study findings reveal that adequate revenue and expenditure responsibilities with some degree of fiscal autonomy to subnational governments are critical to properly implementing fiscal decentralization and improving citizens’ living standards. In addition, the research found that political stalemate, weak national government, poor cooperation among different levels of government, security-related challenges, limited technical, administrative or fiscal capacities, and economic disparity are among the obstacles that hinder effective fiscal decentralization in Somalia. Finally, the study recommends strengthening intergovernmental fiscal relations, finalizing the provisional constitution review to address financial matters, developing a revenue-sharing formula that guides fiscal transfer arrangements, enhancing the institutional capacity of subnational governments, and allocating the considered budget to the social and economic services as they are necessary economic growth.