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