Moving Towards Economic Resilience: Somalia Nears Freedom from Debt Burden
Monday September 25, 2023
Somalia is making significant strides towards increasing domestic revenue collection and improving transparency in its state financial administration. As a result, the country is on track to receive complete debt relief from the International Monetary Fund (IMF) and other lenders in December of this year.
The IMF recently evaluated Somalia’s performance under the Extended Credit Facility agreement and acknowledged the nation’s remarkable progress in implementing reforms to revive its economy, despite numerous challenges. These reforms aim to ensure the optimal use of public resources for the benefit of Somali citizens, stimulate economic growth, and create more job opportunities.
Despite the country’s struggles with issues such as drought, floods, food shortages, weak remittances, and unstable security conditions in certain regions, Somalia fulfills nearly all the requirements for qualifying for complete debt relief. Lenders have already agreed to forgive 76.8% of Somalia’s total debt, but further efforts are necessary, according to Laura Jaramillo, who led the IMF staff.
“To continue the progress made so far, it is crucial for Somalia to focus on strengthening domestic revenue, public financial management, financial deepening and inclusion, governance, and statistics,” stated Ms. Jaramillo. She also emphasized the importance of timely financing and capacity development support from development partners in implementing the reform strategy.
Once the full debt relief is granted, Somalia’s debt burden will decrease from $3.3 billion to $557 million, which amounts to approximately 10% of its GDP. This relief will provide Somalia with more flexibility to address the various obstacles hindering economic growth and development.
In March 2020, Somalia surpassed the threshold for IMF debt relief under the HIPC project and received partial debt relief, reducing its debt stock from $5.2 billion to $3.7 billion.
Upon the completion of the HIPC initiative, the IMF, World Bank, African Development Bank, Inter-American Bank, and the 22 members of the Paris Club, along with other lenders to Somalia, will relieve the country of its debt burden. This will place Somalia among the 31 least developed nations, including the Democratic Republic of the Congo, Burundi, Rwanda, Tanzania, Uganda, and Ethiopia, to receive such aid.