Hassan Istiila
Sunday December 24, 2023
Mogadishu (HOL) - Somali government has completed a ten-year odyssey to secure a $4.5 billion debt write-off from global lenders; throughout this period, the country faced significant challenges, including major security crises, political turmoil, prolonged and severe droughts, a desert locust infestation, and climate shocks.
President Hassan Sheikh Mohamud described this journey as a testament to national commitment and the prioritization of a crucial and enabling agenda. However, Mohamud emphasized the need for comprehensive reforms in laws, systems, policies, and practices to propel the country in a positive economic direction.
An exclusive interview with HOL Jean-Baptiste, the International Monetary Fund Resident Representative for Somalia, provided an overview of the key milestones and achievements that led Somalia to reach the Completion Point under the Highly Indebted Poor Countries Initiative (HIPC).
The journey began in 2013 when Somalia re-entered the international scene, reestablishing relations with the World Bank, the IMF, and other financial institutions. According to Jean-Baptiste, the first success came with a Staff Monitored Program (SMP) lasting three to four years, starting in 2016. SMPs are an informal agreement between an IMF member country and IMF staff to monitor the member country's economic program. In 2020, the country reached the Highly Indebted Poor Countries Initiative's (HIPC) 'Decision Point' for debt relief, marking the beginning of the HIPC process.
"At the decision point, Somalia had already built a track record regarding reforms. Steadfast progress on structural reforms and implemented thirteen of fourteen floating Completion Point triggers, including public financial and expenditure management, domestic revenue mobilization, governance, social sectors, and statistics. Following this progress, the Executive Boards of the International Monetary Fund (IMF) and the World Bank's International Development Association (IDA) approved the Heavily Indebted Poor Countries (HIPC) Initiative Completion Point for Somalia, resulting in total debt service savings of US$4.5 billion," Jean-Baptiste explained.
Jean-Baptiste underscored that reaching the completion point is a milestone for a country in civil war for three decades, acknowledging the limited possibilities during that period. He cautioned against expecting immediate change, stating that external financing would gradually become possible as the country increases domestic revenues.
The World Bank and IMF played pivotal roles in Somalia's decade-long journey, with their cooperation being complementary in implementing 13 of the 14 triggers that allowed Somalia to reach the final stage. Jean-Baptiste advised the country to continue ongoing reforms and increase domestic mobilization.
He emphasized, "We continue working with the government to improve the country's financial situation, allowing for gradual investments in much-needed infrastructure and social sectors."
Jean-Baptiste further highlighted that new loans in Somalia will be conventional due to low revenue, with a zero interest rate, and the repayment period will be extended. Creating physical space and federalism will enable the country to provide basic public services, fostering an environment conducive to private sector investments.
The Somali authorities remain firmly committed to sustaining the reform momentum post-HIPC to build resilience, promote inclusive growth, and reduce poverty.
Debt service relief has been provided by the IMF (US$343.2 million), IDA (US$448.5 million), African Development Fund (ADF) (US$131.0 million), other multilateral creditors (US$573.1 million), as well as by bilateral and commercial creditors (US$3.0 billion). Bilateral creditors include members of the Paris Club, creditors from the Arab Coordination Group, and other official bilateral creditors.
The Heavily Indebted Poor Countries Initiative (HIPC) was launched in 1996 by the IMF and the World Bank to assist the world's poorest countries achieve debt sustainability. Somalia became the 37th country to complete the HIPC process, which has been in place since 1996. The debts are from 1991, when former President Mohamed Siad Barre was ousted, and the state collapsed.