Somalia’s debt relief process: relevance and lessons from reform

– Liban Obsiye is the chief political coordinator in the office of the Minister of Finance of Somalia.

– Abdinor Dahir is a Horn of Africa researcher and analyst at the TRT World Research Center.


Somalia must have shocked the world in recent weeks as the World Bank, the African Development Bank, the International Monetary Fund (IMF) and Paris Club creditors came together to write off most of Somalia’s debts to their countries. institutions and their countries.

From late February to early March 2020, international financial institutions announced that Somalia had made difficult but necessary economic reforms under successive programs monitored by IMF staff, and reached decision point.

This meant that Somalia was eligible for debt relief under the Heavily Indebted Poor Countries (HIPC) Initiative and therefore received debt relief totaling just over US $ 800 million.

This was followed by the successful Paris Club negotiations where Somalia’s debt to the Club of just over $ 3 billion was reduced by $ 1.4 billion. Now the Somali government has turned its attention to the group of non-Paris Club creditors, mainly Arab governments and their institutions, who are owed just over $ 700 million to secure a comparable or better deal.

If Somalia’s positive reform trajectory continues, which is likely to be the case given the determination of the government and the people and a clear track record in implementing previous reforms, Somalia’s external debt will most likely be cleared at the completion point.

However, the main headline is and remains, to the astonishment of many, that Somalia and Somalis have done something right. Ultimately.


Reaching the decision point has been a critical achievement for Somalia. This historic step has helped the Somali government normalize its ties with international financial institutions, which, alongside traditional bilateral and multilateral donors, will now facilitate new development finance through much-needed grants.

These new resources will allow the Somali government to invest in key political priorities to stimulate the economy, better fight poverty and ensure sustainable development for its people.

Reaching the decision point was also monumental as Somalia is no longer synonymous with civil and political unrest. Simply put, Somalia is no longer a failed state. The debt relief stage, which allows Somalia to re-enter the world economy after 30 years of absence, is a signal that the country is making progress towards stability and development.

In addition, the decision to alleviate Somalia’s debts and the country’s accession to the World Bank’s Multilateral Investment Guarantee Agency (MIGA) which followed, should give more confidence to the private sector. Somali and international investors to develop the country’s economic potential.

Reaching the decision point is of additional importance for Somalia, as reforms under successive IMF staff monitoring programs have strengthened good governance and improved transparency in the country.

Despite ranking the country as one of the most corrupt nations in the world, crucial reforms are being undertaken by successive Somali governments as part of IMF reforms, which included biometric registration of all security personnel, payment timely officials direct to their bank account and the fight against corruption in the public sector, have won the trust of Somalis and the international community.

Now, securing debt relief after a long and difficult reform journey – with still some way to go until full debt cancellation after the completion point – will most likely fuel the determination of governments. Somali authorities to maintain this positive momentum.

Lessons of reform

Somalis love to remember a glorious socialist past that never really existed and, together with dictatorship, sparked one of the costliest and most devastating civil wars in modern African history.

However, in order for Somalia to get debt relief, it had to face this story by counting its multi-faceted debt stock. For a fragile nation that is slowly recovering, with a weak and fragmented economy, Somalia has never been able to repay the $ 5.3 billion it owed its creditors.

This is where the good news begins, as this awareness and honest assessment by the Somali government kicked off the process of engaging creditors, which included both countries and institutions, to find a way forward. . Somalia no longer wanted to go into debt and become an outcast of the international financial system.

Under the successive programs monitored by staff, Somalia embarked on a long but successful journey of economic reform from 2016, which confronted government leaders and the population with the harsh reality of the country. debt and exclusion from global financial resources.

There were strict structural benchmarks, including the adoption of primary legislation by legislators, focused on improving domestic resource mobilization and strengthening public financial management as well as good governance, which Have been realised.

For the first time, Somali security personnel have been audited, revenues have increased year on year compared to 2017, and international partners have started to have confidence in the capacity and commitment of Somali authorities to implement reforms.

These reforms were certainly difficult, but in carrying them out the Somali government and people made it clear to themselves (most importantly) and the world that it was no longer business as usual.

Despite the many remaining socio-economic and political challenges, Somalia has made progress.

It is not only the glowing reports of international partners and the achievement of debt relief that symbolize this, but also the growing confidence of the Somali government and people who – yes, after many past traumas and failures – they can actually change their future for the better.

Somalia is an important development laboratory for the world given the country’s unique opportunities and challenges. It is therefore crucial to learn the lessons of Somalia’s economic reform, especially for fragile and developing countries where public debt remains a major challenge.

The most important of these lessons are the importance of leadership and common ownership at all levels, from leadership from government, legislators, the private sector to international partners and the need to constantly engage the public to build trust. and gain and maintain public support for reforms that will strengthen countries’ economic fundamentals and good governance.

More importantly, what Somalia’s debt relief process can teach the world is that reform and development is truly possible where there is genuine partnership across borders and institutions.

After all, in this age of increased interconnectivity and interdependence, it is better to work collectively for sustainable development to achieve common progress and prosperity.

* The opinions expressed in this article are those of the author and do not necessarily reflect the editorial policy of the Anadolu Agency

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