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Somalia has 99% of debt cancelled in major boost for fragile recovery

Paris Club of creditor nations agrees $2bn cancellation as Mogadishu moves towards financial normalisation amid ongoing conflict
Women browse fabrics in a street market in Mogadishu, December 2023. Photograph: Said Yusuf Warsame/EPA-EFE/Shutterstock

Women browse fabrics in a street market in Mogadishu, December 2023. Photograph: Said Yusuf Warsame/EPA-EFE/Shutterstock

The Paris Club, a collection of some of the world’s wealthiest creditor nations, has announced the cancellation of 99% of Somalia’s debt, in a major boost as the country continues its fragile economic recovery from an ongoing three-decade conflict.

The announcement came after officials from Somalia’s finance ministry held meetings with creditor countries organised by the Paris Club, which is run by senior officials from the French Treasury.

In a statement released by the Paris Club, Somalia’s creditors, including the US, UK, Russia, Norway, and Japan, announced the cancellation of $2bn owed to club members as of January 2023.

In a post on X, formerly Twitter, Somalia’s finance minister, Bihi Eged, said: “Achieving full debt relief will transform Somalia’s future and allow our government to create fiscal space for basic public services.” Somalia’s information minister, Daud Aweis, said on X that the agreement marked a “big milestone in the country’s journey to financial recovery”.

Kristalina Georgieva, the managing director of the IMF, also welcomed the breakthrough, calling it a “major stride towards economic development and poverty reduction” for Somalia.

The British ambassador to Somalia, Mike Nithavrianakis, said the UK, one of Somalia’s lenders, was ready “to honour our commitment to full debt relief”.

The Paris Club said part of the debt would be waived on a “voluntary and bilateral basis” between individual countries that Somalia had borrowed from and the rest under the Heavily Indebted Poor Countries Initiative (HIPC), an IMF and World Bank scheme to support poorer countries with unsustainable debt levels.
 

Bihi Eged, Somalia’s finance minister. Photograph: Federal Government of Somalia
Bihi Eged, Somalia’s finance minister. Photograph: Federal Government of Somalia
 

Somalia qualified for debt cancellation under the HIPC last December, making it eligible for up to $4.5bn of debt relief and beginning the normalisation of its relations with international financial markets after three decades of exclusion.

The decision by the Paris Club represents the first major step toward financial normalisation for Mogadishu following the HIPC programme.

Welcoming the December decision in a column for the Guardian, the country’s president, Hassan Sheikh Mohamud, said: “Somalia’s debt relief journey was no simple task; it took nearly a decade, three different administrations, two presidents and four finance ministers to attain debt relief from the boards of the World Bank and IMF on 13 December.”

“Debt relief,” he said, “is just the beginning of real change for Somalia.”

The initiative helps countries that are laden with debt to restructure their budgets, improve transparency and target poverty reduction.

The majority of Somalia’s debt was accumulated during the years of Siad Barre’s military dictatorship, which collapsed in 1991, with interest accruing on the loans since then.

Uweis Abdullahi Ali, an economist at the Heritage Institute, a Mogadishu-based thinktank, said the debt relief “is a big achievement for Somalia and allows [it] to begin re-engaging with credibility with international financial markets”.

Ali added that although Mogadishu was now able to access a wider array of concessional loans, grants and more financial instruments to help finance delivery of public services, the government should prioritise its ability to domestically generate revenue.

“Foreign direct investment targeting infrastructure and employment is more productive than grants and loans given by the IMF or World Bank.”

Author: Editors Desk

Source: The Guardian

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