The recently approved 2008 budget of the republic of Somaliland has seen an increase of 27 percent from the 2007 budget. Domestic economic growth and increased engagement of donors have created a much improved revenue base for the Somalilander government. The Somaliland Ministry of Finance recently presented its budget for the upcoming 2008-09 fiscal year to the Hargeisa parliament, where, after thorough scrutinising, it was approved of.

Somaliland's new annual budget has a total frame of US$ 51 million. While this represents one of the world's smallest national budgets, it is nevertheless seen as a big achievement for a state that has not been recognised by any nation. Somaliland in 1991 dissolved its 1960 union with the rest of Somalia, and has since that established full-fledged democratic institutions, a national currency and a banking sector.

With political stability and internal peace, the Somalilander economy has been steadily on the rise, despite the lack of foreign recognition. Its unrecognised status has also meant that Somaliland's government cannot get access to international credits. While Somaliland thus avoids the debt trap, it however keeps budgets very low.

While domestic economic growth has led to a somewhat greater revenue base for the Hargeisa government, this year's budget increase is mostly based on increased international engagement in this only peaceful and stable corner of Somalia. Somaliland recently reached an agreement with the World Bank and donor nations on a five-year Reconstruction and Rehabilitation programme worth around US$ 550 million dollars, which is to help improve infrastructure, economy and social facilities.

According to the Somalilander government, "the budgetary increase of 27 percent from last year is to accommodate with in the budget the rising world food prices that also affected Somaliland and provide gradual planned pay increases for government workers, increasing government support to higher education institutions, health services and rural developments." While Somaliland spends relatively great amounts on defence - a consequence of constant war threats from other parts of Somalia - the Hargeisa government has a good record regarding investments in social infrastructure, especially health and education services.