Somalia has achieved a landmark debt cancellation deal with international lenders, paving the way for the war-torn nation to access financial markets and attract investment after decades of economic stagnation.
The agreement, announced on Wednesday by the International Monetary Fund (IMF) and the World Bank, will see Somalia’s external debt reduced from $5.2 billion to $557 million, or less than 6 percent of its gross domestic product (GDP), by the end of this year.
The deal was made possible by Somalia’s participation in the Group of 20 (G20) leading economies’ Debt Service Suspension Initiative (DSSI), which aims to provide relief to the world’s poorest countries amid the COVID-19 pandemic.
Somalia is the first country to benefit from the DSSI’s Common Framework for Debt Treatments, which was endorsed by the G20 in November 2020 and allows for deeper debt relief than previous mechanisms.
“This is a historic moment for Somalia and its people. It marks the end of a long and arduous journey of reforms, sacrifices, and perseverance,” said Abdirahman Beileh, Somalia’s finance minister, in a statement.
He thanked the IMF, the World Bank, and other creditors for their “unwavering support and trust” and said the debt cancellation would “unlock new opportunities for growth and development” for Somalia.
Somalia has been mired in conflict and instability since the overthrow of dictator Mohamed Siad Barre in 1991, which plunged the country into a civil war that killed hundreds of thousands of people and displaced millions more.
The country has also faced recurrent droughts, floods, locust invasions, and terrorist attacks by the al-Shabab armed group, which controls large parts of the country and frequently targets government and civilian targets.
Despite these challenges, Somalia has made significant progress in recent years in restoring peace and security, strengthening governance and institutions, and implementing economic and social reforms.
In March 2020, Somalia reached the decision point under the Heavily Indebted Poor Countries (HIPC) Initiative, a process that allows eligible countries to reduce their debt to sustainable levels.
To reach the completion point, Somalia had to meet several conditions, including maintaining macroeconomic stability, implementing a poverty reduction strategy, and clearing its arrears to multilateral creditors.
Somalia achieved these milestones with the help of grants and bridge loans from several countries and institutions, including the European Union, the United Kingdom, Italy, Norway, Qatar, China, Saudi Arabia, and the African Development Bank.
The IMF and the World Bank said Somalia’s debt cancellation would enable the country to access new sources of financing, including grants and concessional loans, to support its recovery and development.
They also urged Somalia to continue its reform efforts, enhance domestic revenue mobilization, improve public financial management, and foster inclusive growth and social protection.
“Debt relief is not an end in itself, but a means to an end. Somalia still faces significant challenges and needs to maintain the reform momentum to rebuild its economy and improve the lives of its people,” said Antoinette Sayeh, deputy managing director of the IMF.
Kristalina Georgieva, the managing director of the IMF, congratulated Somalia on its “remarkable achievement” and said the debt cancellation was “a testament to the commitment and hard work of the Somali people and authorities”.
She also praised the international community for its solidarity and generosity in supporting Somalia’s debt relief.
“Today is a day of celebration for Somalia and for all of us who have worked together to make this happen. It is also a day of hope for a brighter future for Somalia and its people,” she said.
Source: Bloomberg
