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Cablegate: Somalia - Assistance to Central Government With

VZCZCXRO4160
OO RUEHROV RUEHTRO
DE RUEHNR #0214/01 0331334
ZNR UUUUU ZZH
O R 021332Z FEB 10
FM AMEMBASSY NAIROBI
TO RUEHC/SECSTATE WASHDC IMMEDIATE 0637
INFO SOMALIA COLLECTIVE
RHEFDIA/DIA WASHINGTON DC
RHEHNSC/WHITE HOUSE NATIONAL SECURITY COUNCIL WASHINGTON DC
RHMFISS/CDR USAFRICOM STUTTGART GE
RHMFIUU/CDR USCENTCOM MACDILL AFB FL
RUEAIIA/CIA WASHINGTON DC
RUEILB/NCTC WASHINGTON DC
RUEPADJ/CJTF-HOA J2X CAMP LEMONIER DJ

UNCLAS SECTION 01 OF 02 NAIROBI 000214

SIPDIS
STATE FOR EEB/IFD/OMA/ BRIANA SAUNDERS
STATE ALSO FOR AF/EPS MARY JOHNSON

E.O. 12958: N/A
TAGS: EAID ECON AID EFIN PREL SO
SUBJECT: SOMALIA - Assistance to Central Government With
Non-Transparent Budget

REF: SECSTATE 1923

Summary

-----------

1. In 2009, the Transitional Federal Government (TFG)
benefitted from a waiver under Section 7086 of the Department of
State Foreign Operations and Related Programs Act (SFOAA) to permit
the Department and USAID to provide it economic and security
assistance. With Somalia at a critical juncture in its development
and a key front in combating terror and extremism in FY2010 it
remains important to U.S. national security interests to seek a
second waiver for assistance. In the past year, the TFG has made
limited progress in addressing fiscal transparency, including the
publication of a national budget - for the first time since the
government's creation. This budget is publicly available and
reflects planned expenditures though it does not include income and
actual expenditures. In a further genuine effort at fiscal
transparency, the TFG contracted with the international accounting
firm PriceWaterhouseCoopers to oversee the management of
international contributions. Some U.S. funds have been channeled
through this mechanism. Although the TFG has made progress on
fiscal transparency, it still lacks the capacity to create and
maintain a comprehensive budget with updated income and
expenditures and will require a waiver for U.S. assistance to
continue. End Summary.

TFG Expected to Receive USG Funding

--------------------------------------------- -

2. Somalia is expected to receive funding under SFOAA. It
will not receive any International Military Education and Training
in FY2010 nor is it part of the African Contingency Operations
Training and Assistance program or the Global Peace Operations
Initiative. However, the United States will support the TFG in
establishing peace and security by providing assistance for
security sector reform, peace and reconciliation initiatives, and
assistance to key ministries to build their capacity to deliver
services. In FY2010, the U.S.G. will support interventions to
generate training and employment opportunities for disadvantaged
youth. The program will contribute to the design and development
of a longer-term skills training and employment program linked to
an anticipated disarmament, demobilization, and reintegration (DDR)
program. The United States will also support security sector
reform in Somalia to establish civilian policing, facilitate
criminal justice reforms, and provide anti-terrorism training and
assistance.

Annual Budget - A TFG First

---------------------------------

3. In December 2009 the TFG published a national budget for
2010 entitled, "Keeping Our Heads Above the Water." The budget,
released by the Ministry of Finance, was described as a
"transitional budget" that outlined priorities and listed specific
costs for projected activities across ministries. Covering the
period from January to December 2010, the budget allocates funds to
strengthen security, establish key institutions to manage the
economy, reclaim public property, and to achieve and maintain
fiscal transparency and sustainability. This was the first time
since the 2004 creation of the TFG that the transitional
administration released a comprehensive budget estimate. The
document is publicly available through the Ministry of Finance.
The Minister of Finance presented it at the November 2009
Intergovernmental Authority on Development ministerial and

NAIROBI 00000214 002 OF 002


circulated it widely to the international community. The budget
does not include income and expenditures.

4. In October 2009, the TFG Ministry of the Treasury released
a document with income and expenditure estimates from
July-December, 2009. The TFG estimated revenues of USD 55.2
million, 40% representing internal revenues and 60% representing
foreign aid. The estimated internal revenues would be generated
from the Mogadishu port, Abdulle and Km. 50 airports, land taxes,
and from other ministries that collect taxes. The TFG has not yet
published a report reconciling the estimates with actual income and
expenditures. While the TFG has made an effort to improve fiscal
transparency by releasing these budget documents, they are not
complete. Reports indicate that there are additional revenues that
are under- reported or not reported at all, some of which may be
diverted by officials associated with the TFG.

Events Affecting Fiscal Transparency

--------------------------------------------

5. In January 2009, the expanded Transitional Federal
Parliament elected former Chairman of the Alliance for the
Re-Liberation of Somalia Sheikh Sharif Sheikh Ahmed as TFG
President. Sharif's election heralded a new TFG administration
which gave priority to improving financial accountability and
oversight and fiscal transparency. Between February and May 2009,
the TFG made initial progress in establishing controls over port
and airport revenues and tracking its expenditures. However, in
May, the TFG became mired in a violent conflict with the terrorist
group al-Shabaab. With almost daily attacks on government
officials and targets, minimal working conditions for key ministers
responsible for fiscal issues did not exist. In the second half of
2009, security was the TFG's top priority and plans to improve
financial oversight and fiscal transparency progressed only very
slowly.

Efforts to Improve Fiscal Transparency

--------------------------------------------- -----

6. In July, 2009 the TFG announced that it would establish a
financial accountability and integrity board as a key step in the
restoration of effective governance and in building public trust.
With international pledges to support security assistance and other
programs, the TFG negotiated an agreement with the international
accounting firm PriceWaterhouseCoopers to provide financial
management of some donor funds received by the TFG. To date, the
United States, China, Rwanda, and Libya have utilized this
mechanism to improve oversight and accountability for bilateral
contributions. The TFG is also working with the World Bank to plan
for a multi-year public finance management reform program. Since
last year's review, the TFG has made limited progress, but ongoing
violent conflict, weak institutional capacity, and limited
financial and human resources prevent it from maintaining a
comprehensive and transparent budget. For these reasons, in FY2010
Somalia will still require a waiver for U.S. assistance to
continue.
RANNEBERGER

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