An upcoming crisis looms over Somalia’s aspiration for full debt relief from the International Monetary Fund (IMF) and other multilateral lenders by the end of the year. This crisis is rooted in a renewed political dispute between the federal government of Somalia and the Puntland federal member state, coupled with the failure of the fragile reforms set to boost revenue collection and fiscal transparency. Officials and experts are cautioning the government over the dangers of failing to maintain its steady progress on financial reforms since it could cost Somalia its bid to reduce its debt from $5.2 billion to around $550 million by 2023.
Moreover, experts are worried about the challenges that may stem from lack of competitive procurement, non-verbal agreements between government levels and federal member states on fiscal federalism, and the current lack of transparency in several oil and gas deals that could put Somalia’s progress towards winning reliable financial credibility in jeopardy. Notably, the debt owed by Somalia to external creditors is estimated to be more than $5 billion, and Somalia’s eligibility to the Heavily Indebted Poor Countries (HIPC) Initiative of the IMF and World Bank requires economic, financial, and political stability status quo.
In response to concerns raised over Somalia’s stalled progress, Somali President, Hassan Sheikh Mohamud, signed a set of anti-corruption directives aimed at enhancing the legitimacy, credibility, and transparency of the country’s financial institutions. Nevertheless, the nonprofit Transparency International rates Somalia as one of the most corrupt countries globally, citing constant violence and inadequate anti-corruption bodies. The Debt relief is a crucial milestone in Somalia’s economic future, and unnecessary political disputes and corruption may lead Somalia to lose this golden opportunity to regain its financial position in the international community.