The Recurrent Cost and Reform Financing (RCRF) project is a national program which supports the FGS and, through intergovernmental transfers, all FMS. It does not include Somaliland for now. The first phase of RCRF is closed. Phase II of the project (RCRF II) was restructured and scaled up with additional financing in 2018. RCRF III, approved as an IDA-only grant of US$68 million and effective as of December 16, 2020, complements RCRF II with an enhanced focus on intergovernmental fiscal federalism, citizen engagement, and service delivery. RCRF III will provide continuity of recurrent cost financing beyond the lifetime of RCRF II into 2022 and 2023, providing a more predictable recurrent cost financing framework. It was only possible to prepare the new operation in such a short time because of the existing RCRF II operation, to which the MPF provides critical support. The overall approach to RCRF III is one of continuity with RCRF II, but with additional measures. RCRF III will also contribute to COVID-19 response and recovery through scaled-up fiscal support to FMS through fiscal transfers for education and health service delivery, scale-up of the Marwo Caafimaad Female Health Worker (FHW) Program and retraining for COVID-19 response. RCRF continues to provide a ‘baseline’ level of input-based financing of the FGS civil service wage bill. During 2021 there is US$7 million of baseline financing available to the FGS, at the same level as in 2020 and 2019, and down from US$8 million in 2018. Progress in timely payments of FGS civil service salaries has been made, and any late payments are limited to a few days. A category funding issue created a liquidity squeeze in early 2021. This was, however, resolved by the replenishment of US$10 million from the MPF to project funds.