Mogadishu (AX) — In a monumental financial shift, Somalia has seen $1.14 billion in debt forgiven by the United States, signaling a significant stride towards achieving economic stability and revitalizing fundamental public sectors. Richard Riley, the US Ambassador to Somalia, shared this news in Mogadishu, emphasizing America’s strong dedication to bolstering Somalia’s future.
Emboldened by this support, Riley stated, “This debt cancellation underlines our unwavering commitment to aid the Somali people in their pursuit of a brighter tomorrow.” This substantial relief forms part of a broader $1.2 billion assistance initiative from the US, designed to nurture development, ensure economic steadiness, reinforce security, and provide humanitarian support.
In a remarkable stride, Somalia recently secured $4.5 billion in debt relief under the HIPC Initiative, sanctioned by the IMF and the World Bank’s IDA. This historic move slashed Somalia’s external debt from a burdensome 64% of its GDP in 2018 to a mere 6% by the close of 2023. Such financial liberation promises new avenues for fostering economic expansion and combatting poverty.
This wave of financial reprieve follows a crucial accord with the Paris Club, a conglomerate of creditor countries. In March 2024, it declared the annulment of a staggering 99% of Somalia’s debt, roughly $2 billion. This landmark decision marks a pivotal moment for Somalia, a nation long hampered by economic challenges and instability.
Somalia’s financial woes have deep roots in its tumultuous past, notably the vast debts accumulated under Siad Barre’s reign, which collapsed in 1991. Currently, over two-thirds of Somalis subsist on less than $2.15 a day, highlighting an ongoing need for sustainable economic reforms and impactful financial aid to alleviate widespread poverty.
Bihi Iman Egeh, the Finance Minister, expressed gratitude, noting, “This agreement heralds a transformative era for Somalia, empowering our government to channel resources into crucial public services.” The relief is poised to funnel vital resources into education, healthcare, and infrastructure.
Nonetheless, challenges loom large. The specter of Al-Shabaab and climate change pose significant threats to food security and national stability. Experts caution that while debt relief is crucial, it must be complemented by solid domestic reforms to facilitate sustainable economic growth. Uweis Abdullahi Ali, an economist, stressed the urgency for the Somali government to bolster domestic revenue generation capabilities.
Envisaging the horizon, debt forgiveness is seen as a beacon for attracting private investments, notably in agriculture. The IMF has revised Somalia’s GDP growth outlook, anticipating a 4% growth rate for both 2024 and 2025, propelled by agricultural revivals and remittances. Business luminaries like Hersio Abdulle Siad are hopeful, expressing, “We eagerly anticipate investors, especially in the agriculture sector, to increase production for both local and international markets.”
Somalia’s fiscal outlook remains promising, with an overall deficit projected at 0.2% of GDP for 2024, while efforts are geared towards augmenting domestic revenue.
The proposal to reintroduce the Somali Shilling aims at boosting financial stability and inclusion, symbolizing a noteworthy stride towards economic reform. Nonetheless, its complete execution hinges on external financial aid and competent governance. Somalia’s new membership in the East African Community is expected to unlock fresh market opportunities, enhancing its potential for economic diversification.
Edited by: Ali Musa
alimusa@axadletimes.com
Axadle international–Monitoring
