- Somalia on Wednesday secured a $4.5 billion debt relief deal with international creditors.
- The deal is part of the Heavily Indebted Poor Countries Initiative, a debt relief program overseen by the International Monetary Fund and the World Bank.
- Somalia’s current national debt is over $5 billion.
Somalia on Wednesday secured a $4.5 billion debt relief deal from its international creditors, the International Monetary Fund and the World Bank said, which will allow the country to grow economically and undertake new projects.
The deal comes as part of a debt relief program – called the Heavily Indebted Poor Countries Initiative – overseen by both agencies. As a result of its participation in the program, Somalia’s external debt will fall from 64 percent of GDP in 2018 to less than 6 percent of GDP by the end of 2023, the IMF and the World Bank said in a joint press release .
Somalia’s national debt currently exceeds $5 billion, according to official figures.
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“Somalia’s debt relief process has been nearly a decade of intergovernmental efforts spanning three political administrations. This is a testament to our national commitment and prioritization of this critical and enabling agenda,” Somalia’s President HE Hassan Sheikh Mohamud said in a statement.
The U.S. Treasury Department said it intended to cancel 100 percent of Somalia’s remaining claims and “urges Somalia’s other bilateral creditors to be equally generous and move quickly.”
The agreement is “an important milestone on Somalia’s path to continued recovery and meaningful reform to promote greater stability and economic opportunity for the people of Somalia,” US Treasury Secretary Janet Yellen said.
Ali Yassin Sheikh, deputy governor of Somalia’s central bank, told The Associated Press on Wednesday that the debt relief under the Heavily Indebted Poor Countries Initiative comes as a relief to his country, which is eager to secure new financing for public constructions.
In addition, he said, it will now be easier for Somalia to attract new investors.
“The debt cancellation will lead to a change in the world’s perception of the country’s economic stability,” he said. “Somalia will be able to access global capital and investment from around the world as it is open to international financial markets.”
He warned, however, that “it is vital to ensure that steps are taken to prevent Somalia from slipping back” into high debt.
Somalia remains one of the world’s poorest countries, plagued primarily by security challenges stemming from years of unrest.
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The Horn of Africa country is trying to achieve political stability with transitions like the one that led to Hassan Sheikh Mohamud in 2022, despite setbacks, including an ongoing insurgency by al-Shabaab. The extremist group, which opposes the federal government, still controls large parts of rural Somalia. Al-Shabaab regularly carries out deadly attacks in Mogadishu, the capital, and elsewhere in the country.
Somalia is also vulnerable to climate-related shocks, with some parts of the country approaching famine conditions, according to the World Bank. At the same time, heavy rains in parts of Somalia have recently caused devastating floods.
Debt relief will free up revenue, including meager but expanding domestic sources, to invest in key public infrastructure, said Mohamed Mohamud Adde, an independent political analyst and academic based in Mogadishu.
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“It is vital for the Somali government to clear its debts as the government is unable to raise taxes from the public and cannot borrow money from international organizations because of these debts,” he said. “Somalia’s old infrastructure has been eroded by time and civil war. Therefore, building new roads is essential for the country’s development. This would create jobs and facilitate people’s ability to trade with each other.”