Somalia receives debt relief after months of negotiations

MOGADISHU, Somalia - Somalia has been formally cleared for debt relief under enhanced Heavily Indebted Poor Countries [HIPC], officials said, after close monitoring by International Monetary Fund [IMF] and World Bank.

For months, the Horn of Africa nation has been running against time to initiate radical financial reforms, which have since gotten approval from the international lenders, reports indicate.

And on Wednesday, both IMF and World Bank approved through debt relief for Somalia, making it the 37th country to reach this milestone, known as the HIPC Decision Point.

The development means Somalia's debt will be irrevocably reduced from $5.2 billion at the end of 2018 to $557 million in the net present value terms once it reaches the HIPC Completion Point in three year's time, World Bank said.

For three decades, Somalia has struggled to establish a functional state, with efforts always undermined by inter-clan conflicts, smuggling, Al-Shabaab threat, and internal political squabbles.

But the debt relief would enable the country to access critical additional financial resources to strengthen the economy, improve deteriorating social conditions and generate sustainable employment for Somalis.

“We welcome Somalia’s efforts to restore stability, engage with creditors, and adopt a poverty reduction strategy,” said World Bank Group President David Malpass. “Resumption of regular financing to Somalia is an important landmark, and we look forward to furthering economic and social progress.”

Kristalina Georgieva, IMF Managing Director, who has been in the frontline helping Somalia to comply, welcomed the decision, adding that much had been done satisfactorily by the FGS.

“I would like to congratulate the Somali government and people for their intense efforts over the past years leading to this momentous event,” she said.

The reforms, she noted, had laid a "foundation" for inclusive economic growth by addressing the needs of vulnerable people. She urged FGS to continue with the implementation of the reforms.

While noting the milestone in Somalia, she added that "I am confident a more resilient and prosperous future lies ahead for the people of Somalia.”

Prime Minister Hassan Ali Kheire and finance minister Abdirahman Baileh Duale have been leading the economic revolution in Somalia, although the government has been unable to tame the Al-Shabaab's rampant mafia-style taxation tactics.

Mr. Kheire welcomed the decision arguing that it allows Somalia to re-engage with international financial institutions, a move that would boost the stagnated economy.

"This decision is an important milestone which presents ample opportunities for Somalia as it relentlessly pursues its ongoing reform processes as well as its recovery and development agenda,” he said.

“The journey leading to this decision required hard work, dedication, and partnership," he added, lauding the international lenders for "patience and resilience" in the journey.

Somalia has committed to maintaining macroeconomic stability; implementing a poverty reduction strategy; and putting in place a set of reforms focused on fiscal stability, improving governance and debt management, strengthening social conditions, and supporting inclusive growth in order to reach the HIPC Completion Point.

The World Bank and IMF will continue working together to provide the technical assistance and policy guidance the authorities need to achieve these goals, including in the context of the new, three-year IMF financial arrangement.

GAROWE ONLINE