In a significant move, Somalia has announced the cancellation of over $1.1 billion in loans, roughly a quarter of their outstanding debt. Wow, isn’t that a breath of fresh air? This declaration follows a string of similar commitments by lenders, freeing Somalia from financial shackles. The burden originated chiefly during Siad Barre’s authoritarian rule, the aftermath of which led to civil chaos lasting three decades. The saga of heavy debt continued to loom large until now.
President Hassan Sheikh Mohamud described the debt as a “suffocating” burden, one that the nation simply could not sustain due to mounting interest during years mired in chaos and governmental breakdown.
On a promising Tuesday, Somalia and the United States inked a crucial deal, marking the forgiveness of $1.14 billion. This event could be seen as a turning point. Somalia’s finance minister, Bihi Egeh, via X, expressed heartfelt thanks toward the US, appreciating the steadfast backing for their economic growth and reforms. Words of hope and optimism now waft through the air.
From the corridors of the Ministry of Planning, Investment and Economic Development, the director-general, Mohamed Shire, dubbed this agreement “historic”, heralding it as “excellent news for Somalia’s recovery efforts”. Meanwhile, Mohamed Dubo, who leads Somalia’s investment promotion office, amplified this sentiment in a tweet, boldly stating, “Somalia can now face its future UNCHAINED.”
To give some perspective, the US was once Somalia’s largest individual lender, holding almost 20% of the total debt figure back in 2018, prior to the debt-alleviation voyage, according to IMF stats. Speaking from the American Embassy in Mogadishu, Ambassador Richard Riley said that it marked a “great day” for both nations. It was the heftiest chunk of debt forgiven under the Heavily Indebted Poor Countries Initiative (HIPC), a scheme with the World Bank and IMF at its helm, aimed squarely at lightening the debt load of impoverished countries.
By December 2023, after navigating through the HIPC program successfully, Somalia was on track for $4.5 billion in debt relief and had rekindled its rapport with global financial bodies, from which it had been ostracized for decades.
Riley elucidated the journey saying, “With backing from the US and our partners, Somalia embraced a medley of reforms, which included enacting new laws, altering operational routines, and enhancing accountability in financial matters while steering towards sustainable practices.”
Back in March, the Paris Club—encompassing some of the wealthiest creditor nations—agreed to forgive 99% of $2 billion in loans that Somalia owed. According to World Bank numbers, this drastically lowered Somalia’s external debt from a daunting 64% of GDP in 2018 to a mere whisper under 6% by the twilight of 2023. Momentum didn’t stop there; in June, an agreement with the Opec Fund for International Development wiped $36 million off Somalia’s debt slate, thanks to a bridging loan from Saudi Arabia. “The ink on today’s agreement unlocks new resources from the Opec Fund for our national development,” Egeh noted optimistically.
Harry Verhoeven, a whiz on the political economy of the Horn of Africa, remarked that Somalia’s newfound debt freedom is “meaningful,” since it unlocks greater access to public financing vehicles. Nevertheless, he cautioned that private creditors might still harbor skepticism over persistent qualms concerning Somalia’s financial governance and political volatility.
So here stands Somalia, debt reduced, hope renewed, and tread ready for the future. In embracing reforms and walking new fiscal paths, the country is unshackling itself from the ghosts of its past. With continued guidance and good governance, the sky now looks just a bit clearer on the horizon!
Edited by: Ali Musa
alimusa@axadletimes.com
Axadle international–Monitoring
