US cancels $1.1 billion Somalia debt in latest win for Mogadishu
US ambassador to Somalia Richard H. Riley and Somalia Finance minister Bihi Iman Egeh signed the debt relief agreement in Mogadishu on November 5, 2024. via X
The US has written off more than $1.1 billion of Somalia’s debt, signalling Mogadishu’s continued wins in the international arena.
At a brief ceremony at the US Embassy grounds in Mogadishu, Washington’s officials said Somalia would no longer be burdened by the money it owed, allowing Mogadishu to redirect its spending to urgent matters.
Richard H. Riley, the US ambassador to Somalia, said the debt relief was worth $1.14 billion and was a strong sign of US commitment to Somalia’s future.
“This debt forgiveness is a testament to our unwavering commitment to support the Somali people on their journey toward a brighter future,” Mr Riley said after signing the deal for his country on Tuesday. Finance minister Bihi Iman Egeh signed the agreement for the Federal Government of Somalia.
“This agreement will transform Somalia’s future, allowing our government to allocate resources to essential public services,” Mr Egeh said, hailing the debt relief as one that could allow the government to increase allocations for health, education and infrastructure development.
Somalia attained its first major economic milestone by receiving $4.5 billion in debt relief under the Heavily Indebted Poor Countries (HIPC) Initiative as announced by the International Monetary Fund (IMF) and the World Bank’s International Development Association (IDA) in December 2023.
“Following HIPC Completion Point, Somalia’s external debt has fallen from 64 percent of GDP in 2018 to less than 6 percent of GDP by end 2023,” the Bretton Woods institutions said.
“This debt relief will facilitate access to critical additional financial resources that will help Somalia strengthen its economy, reduce poverty and promote job creation.”
The debt relief came after years of negotiations with the IMF on behalf of creditors through several rounds of Staff-Monitored Programmes (SPMs) until they reached a completion point, paving the way for significant debt cancellation.
In July 2023, Somali officials said Russia had granted debt relief on more than $684 million owed by the Horn of Africa nation in a deal finalised on the sidelines of a Russia-Africa summit in the city of St Petersburg.
In March 2024, the Paris Club, a coalition of creditor nations, announced the cancellation of about $2 billion in debt, which followed the IMF and World Bank’s announcement of debt relief for 99 percent of Somalia’s debt.
On Tuesday, Mr Riley said: “The $1.1 billion is in addition to the $1.2 billion of development, economic, security, and humanitarian assistance the United States has provided to Somalia during the current fiscal year.”
“The United States continues to be a steadfast partner in support of the people of Somalia,” he said separately.
Somalia has faced many challenges in rebuilding its institutions and was once saddled with a mammoth $5 billion debt, some of which was borrowed in the final years of the Siad Barre regime in the late 1980s.
But it has also suffered from the negative effects of climate change, insecurity, high poverty and unstable governance. Debt relief was initially conditional on improvements in State institutions and data collection to adequately measure the health of the economy and tame wastage.
Dr Mohamud Mohamed Uluso, a former presidential candidate in 2017, suggested that debt cancellation is beneficial if it is well managed.
“The debt relief promotes sound macroeconomic management, adherence to the free market principles, and recognition of private sector as the engine of economic development, establishment of efficient public administration, prudent domestic and external borrowings, and above all the respect for the rule of law,” Dr Uluso said in an analysis.
“Mobilisation of domestic revenues to support self-sufficiency, provision of public services and social stability yield added advantage.”
In general, debt forgiveness is seen as encouraging investment, especially in the productive sectors like livestock, agriculture and fisheries.
International financial institutions, especially the IMF, have upgraded Somalia’s GDP growth forecast, predicting a four percent growth rate for 2024 and 2025, supported by the revival of the traditional productive sectors and remittances.
According to recent World Bank reports, more than two-thirds of the Somalia’s population lives on less than $2.15 a day, underscoring the crucial need for an all-inclusive economic reform and substantial financial assistance to address widespread poverty.
This week, however, aid agencies warned that Somalia could face a serious food shortage problem following prolonged dry spells.
Dr Hussein Ali Ahmed, a Mogadishu-based economist, told The EastAfrican: “To beat all these socio-economic ailments, debt relief must be complemented by strong national reforms.”
Dr Ahmed, a consultant in the fisheries sector, added: “Somalia’s recent admission into the East African Community is anticipated to pave the way for new markets and opportunities for economic expansion, especially the country’s potential blue economy.”
