The International Monetary Fund officially recognized the Somali government on Friday, ending a 22-year hiatus and allowing the Fund to provide economic policy advice to Somalia.
The move opens the way for donors and other development banks to resume relations with Somalia, whose economy is in tatters after more than two decades of conflict.
Donors are expected to meet officials from the World Bank and International Monetary Fund during meetings of world finance leaders in Washington next week.
"The decision is consistent with broad international support and recognition of the federal government," the IMF said in a statement. The IMF said, however, that it will not be able to approve lending to Somalia until the government clears $352 million in debt it owes to the IMF.
The United States has said it will work with the World Bank and the IMF to help Somalia clear the debt. The country also owes the World Bank about $250 million, which is preventing the institution from providing development aid to the government.
Major Western donors, including the United States, Britain and countries in Europe, have slowly been re-engaging with the Mogadishu government since the election of President Hassan Sheikh Mohamud last year. It was the first vote of its kind since warlords toppled military dictator Mohamed Siad Barre in 1991.
In subsequent years, al Qaeda-linked al Shabaab insurgents seized control of large swathes of the south and central parts of the country. An African Union force has had some success in driving the insurgents out of the capital.