Following years of financial reforms under the Heavily Indebted Poor Countries Initiative, or HIPC, Somalia completed years of debt forgiveness granted by the World Bank and the International Monetary Fund on Wednesday.
The World Bank and the IMF started the programme in 1996 to assist the world’s poorest nations in becoming debt-sustainable.
The debt relief will “facilitate access to critical additional financial resources that will help Somalia strengthen its economy, reduce poverty, and promote job creation,” according to a statement from the IMF and the World Bank.
The statement went on, “Somalia’s external debt has decreased from 64 percent of GDP in 2018 to less than 6 percent of GDP by end 2023 following HIPC Completion Point.”
The debt remission was welcomed by the Somali government.
In an interview with VOA, Minister of Finance Bihi Egeh said, “It’s a huge milestone, and we are really proud.”
It is a great accomplishment to see that Somalia has reached the finishing line. It’s also a great deal of responsibility, as Somalia needs to be self-sufficient, maintain the progress gained in reform over time, and increase domestic revenue mobilisation, according to Egeh.
Since the HIPC procedure was implemented in 1996, Somalia is the 37th nation to have finished it.
The state fell apart in 1991 after former President Mohamed Siad Barre was overthrown, and that is when the debts date from.
The action, according to World Bank Country Manager Kristina Svensson, offers Somalia a fresh start in its efforts to strengthen its economy.
In an interview with VOA Somali, Svensson stated, “This is a huge debt relief for Somalia.” “This is a very important signal to investors and the private sector, and it means a fresh start for Somalia.”
The budget for the upcoming year was agreed by the Somali Cabinet in October, with over $1 billion of that amount projected to come from outside funding as the government of Somalia has not yet received any funding from the entire nation. The airport and seaport in Mogadishu currently provide the majority of the government’s income.
According to Svensson, it’s critical that the government increase its domestic revenue. She claimed that with the debt cleared, Somalia will find it difficult to take on fresh loans.
“Due to the extremely low revenue, you cannot just start taking on new debt if you do not have income, just like if you have a credit card and you cancel all the debt,” the speaker stated.
“Solomona has very favourable conditions because it will be very difficult for them to take on any debt that is not highly concessional, given the low revenues.”
According to Egeh, the administration is determined to raise domestic revenue from the $345 million it receives each year. He stated he had no intention of taking out any more loans.
“In order to be able to meet our domestic operations and, in the near future, also cover some of the development needs, we are actually working to enhance and strengthen our domestic revenues,” he stated.
According to Svensson, Somali authorities have demonstrated a sustained commitment to changes over multiple administrations. International financial institutions, she said, want Somalia to keep up its reforms.
“The harmonisation of customs tariffs and implementation of the same customs tariffs in the ports of Kismayo, Bossaso, and Mogadishu was one HIPC Completion Point trigger that was not achieved,” the spokesperson stated.
She attributed the lack of tariff harmonisation to “political challenges.”
That indicates that this change must go on. An intergovernmental agreement regarding customs is required.
She claimed that since harmonising customs policies is one of the East African Community’s goals, Somalia’s recent admission to the regional economic bloc will serve as further motivation for this reform.
