Paris Club Creditors cancel Somalia's $1.4 billion debt
MOGADISHU, Somalia - Efforts to get debt relief by Somalia authorities gained momentum on Tuesday, with the reputable lenders Paris Club Creditors canceling $1.4 billion owed by the Horn of Africa nation, of the total $5.2 billion.
Somalia has been pushing for the cancellation of its ballooning debt, some of which dates back over four decades ago when the country was fighting the repressive regime of Siad Barre, who was toppled in 1991.
The creditor nations have been part of international partners rallying for reforms in Somalia's financial systems, which were almost impaired for three decades, thus giving loopholes for massive graft targeting donor funds.
And in response, global lenders including IMF and World Bank cut off links with the country, further blocking it from possible financing, a move that crippled development growth, even as Somalia struggled to embrace a functional government.
The $1.4 billion cancellations contribute to 67 percent of the total debt owed by Somalia to Paris Club Creditors. It came after more than nine hours of discussions by videoconference, Reuters reported.
Abdirahman Baileh, the country's Finance Minister, hailed the money as a "big step" for Somalia, which is still grappling with the recent desert locust invasion and Coronavirus pandemic.
"We had very productive discussions with the Paris Club and we welcome their support in relieving Somalia of a substantial amount of its debt to them," Beileh told Reuters.
For some time now, Somalia has been putting credible systems to the international standards, which was part of the stringent demands towards its bid for debt relief, one of the major tasks by President Mohamed Abdullahi Farmajo.
The creditors agreed to restructure the country's external debt, a move that now almost sets the impoverished nation on the right path towards recovery after decades of skirmishes.
“The representatives of the Paris Club creditor countries agreed on 31 March 2020 with the Government of the Federal Republic of Somalia to restructure its external public debt,” the creditor
Baileh said the Somali government would hold separate bilateral discussions with the creditors to finalize the process. He said his government would continue the economic reforms it had undertaken over the past eight years to enable the debt relief.
Some of the radical reforms have been enhanced in the country's parliament, which includes the enactment of the Public Finance Act, which guides all the fiscal policies of Somalia, authorities said.
Last week, the World Bank and IMF gave Somalia a clean bill of health, paving way for debt relief under Highly Indebted Poor Countries [HIPC] initiative, which could eventually see 100 percent debt cancellation.
The international lenders said they were "satisfied" with Somalia's reform agenda, further hailing Dr. Baileh for his "consistent" and deliberate efforts to renew hope for Somalia's much needed financial access.
Several of Somalia’s Paris Club creditors, including the United States, the UK, and Norway, as well as the World Bank and the IMF, urged Paris Club members to provide "generous" debt relief to Somalia during the negotiations on Tuesday.
Somalia is the 37th country to qualify for debt relief under the HIPC process, a milestone gave the short period Mr. Farmajo has been in power.
In time, debt relief will help Somalia reduce its external debt to $557 million in net present value terms from $5.2 billion at the end of 2018, the IMF and the World Bank said.
The IMF last week also approved a new three-year $395 million financing arrangement for Somalia under its Extended Credit Facility [ECF] and Extended Fund Facility [EFF], the New York Times reported.