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The Paris Club, a collection of some of the world’s wealthiest creditor nations, has announced the cancellation of 99% of Somalia’s debt, a major boost as the country continues its fragile economic recovery from an ongoing three-decade conflict.
The representatives of the Paris Club creditor countries met with the Government of the Federal Republic of Somalia and reached a consensus on a debt cancellation for the Federal Republic of Somalia, following its Completion Point under the Enhanced Heavily Indebted Poor Countries (Enhanced HIPC) Initiative approval by the Executive Boards of the IMF and the World Bank in December 2023. The HIPC initiative helps countries that are laden with debt to restructure their budgets, improve transparency, and target poverty reduction, in preparation for debt relief.
Somalia’s debt relief journey was no simple task; it took nearly a decade, three different administrations, two presidents, and four finance ministers to attain debt relief from the boards of the World Bank and IMF, said President, Hassan Sheikh Mohamud
Achieving full debt relief will transform Somalia’s future and allow the government to create fiscal space for basic public services. This agreement marked a big milestone in the country’s journey to financial recovery, stated Daud Aweis Somalia’s information minister. Kristalina Georgieva, the managing director of the IMF, also welcomed the breakthrough, calling it a major stride towards economic development and poverty reduction for Somalia.
The majority of Somalia’s debt was accumulated during the years of Siad Barre’s military dictatorship, which collapsed in 1991, with interest accruing on the loans since then.
This is a big achievement for Somalia and it allows the country to begin re-engaging with credibility with international financial markets. Somalia was now able to access a wider array of concessional loans, grants, and more financial instruments to help finance the delivery of public services, the government should strengthen its ability to domestically generate revenue. The government should prioritise the new fiscal space for expanding essential services such as education and health and other productive investments that will bear fruit for the domestic economy.
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The Paris Club was formed in 1956. It is an informal group of official creditors whose role is to find coordinated and sustainable solutions to the payment difficulties experienced by borrower countries. The members of the Paris Club which participated in the reorganization of the Federal Republic of Somalia’s debt were representatives of the Governments of Belgium, Denmark, France, Germany, Italy, Japan, the Netherlands, Norway, the Russian Federation, Spain, the United Kingdom and the United States of America.
