Somalia: After debt relief, the politics
EDITORIAL | Somalia may have been so used to negativity for the last three decades. But this week, it may have been the only country in the world this week to receive good news.
Amid the ravaging novel coronavirus disease (COVID-19), Mogadishu was receiving debt relief clearances from its past lenders.
On Tuesday, the Paris Club—the group of rich countries that traditionally lend the poor—agreed to clear Somalia’s $1.4 billion arrears.
This decision and that of the World Bank, International Monetary Fund, and the Africa Development Bank (AfDB) to clear arrears Somalia owed to them has brought with it a promising future.
Somalia’s debt arrears before this was $5.2 billion. Those arrears have been cut to $557 million. In simple terms, it means Somalia has returned to the world of global borrowing after 30 years in darkness. It means Mogadishu could start asking for project financing in what could allow Mogadishu to seek loans from lenders.
“This is in recognition of our strong track record of reform and commitment to rebuilding our country,” said Abdirahman Beileh, he Somali Finance Minister after meeting virtually with the Paris Club members on Tuesday.
“We will continue with our reforms and go forward.”
In Somalia, however, the question of who deserves credit is as important as whether the credit is deserved at all. In truth, Somalia’s debt situation is still significant, and Mogadishu may want to do a lot more to have the debt totally forgiven. Under a level known as Completion Point, the lenders may take up to 16 years to forgive the debt or a minimum of three years.
Leaders in the opposition coalition Forum for National Parties were pointing out that the achievements seen this week began from past regimes.
“[This is] The culmination of years of dedication and hard work by successive administrations,” Sharif Sheikh Sharif Ahmed, a former President of Somalia, now the patron of FNP said in a statement.
“We view the debt relief framework as a political process supported by Somalis of all persuasions. I pay special tribute to the residents of Mogadishu, whose taxes have contributed significantly to raising the revenues for the FGS, a crucial requirement within the HIPC.”
The FNP includes two former Presidents in Ahmed and Hassan Sheikh Mohamud, so it could explain the desire to be recognized.
But Somalia has lately become a political hot point.
Elections were planned for later this year and most leaders saw the debt relief in political terms, even though the steps have been done by government bureaucrats.
FNP, for example, the “outgoing administration” of Mohamed Farmajo could weaponize the achievements to realize “political objectives”, citing what it called misinformation to the public in debt relief portrayed as a cancellation.
“For an administration that had spent the last three years gerrymandering electoral process and intimidating its opposition, the concern for the politicization of debt relief and the attempt to steal IDA funds are shared widely within the public,” FNP said in a statement.
Somalia was the 37th beneficiary under a program known as the Heavily Indebted Poor Countries Initiative (HIPC). It followed Liberia, another African country bailed out ten years ago as it started from deadly civil war.
The global lenders did say this step will allow Somalia to borrow for development, and depart from the tradition now where donors have had to chip in for most of Somalia’s budget.
Naima N Ahmed, an economist on Horn of Africa countries argues Somalia could benefit from the debt relief only as much as political decisions are sound.
“[The] Next phase is more political than economics. Politics aside, observation of sound physical policies will finally write-off the debt,” she argued on her Twitter page, referring to the next three years.
“[There is no doubt] No doubt Somalia will need both fiscal and emergence support (in the range of $0.5 billion) due to the likely fall of domestic revenues. It is time to think outside the box and diversity tax sources—inland tax must be given an urgent attention.”
Donors argued Somalia should be able to turn attention to much needed services to improve conditions of life and eventually eradicate poverty. Some experts though feel the debt relief offered to African countries may not be of help to Mogadishu.
Abdiwahab Sheikh Abdisamad, an analyst at Southlink Consultants in Nairobi argued some countries in Africa ended up paying more under debt relief than without it.
“The debt reduction on offer is too small for African countries. For example, that given to Zambia and Niger, they will actually pay more after the initiative,” he said. But politically, he argued, the relief is a good victory for the current administration.
“To some extent, it can be a campaign tool for Farmajo in the next election.”
To do that, however, may mean that Somalia’s next elections will be held and that it will be an issue-based political campaign. Somalia, however, has 70 percent illiteracy and most of the population thinks of food and security before anything else.
Former Planning Abdirahman Abdishakur warned Somalia must learn from other countries in the region who misused their relief and failed to emerge from the poverty warp.
“The government can take pride in that, and celebrate the fact we have cleared all the hurdles to the decision point,” he said of the debt relief announcement.
“Now we have to fulfill the conditions of the fourth stage, the completion point, which is the final stage in which Somalia’s debts will be forgiven, provided that we fulfill all the conditions. Remember, we still have to pay our debts, but now to those countries.”
Somalia is a federal system, however, has seen donors admit any debt relief benefits must see an agreeable dialogue between all arms of government on the political future of the country.
Ben Fender, the British Ambassador to Somalia said: “greater dialogue” between the Federal government of Somalia and the federal member states will be vital.
“[It is vital…] to make the most of debt relief, deliver timely national direct elections in line with the new law, and tackle coronavirus. I welcome these apparent steps forward and hope that those concerned can agree to meet very soon.”
It is the UK, as a member of the IMF that convinced 100 other key members to agree on debt relief for Somalia. The relief, however, meant Somalia could now owe countries that pooled their funds to clear arrears Mogadishu owed.
The IMF argues the relief could aid Somalia’s repair of past destructive management of the economy. But it appears political maturity will be key.