In a historic move, the Executive Boards of the International Monetary Fund (IMF) and the World Bank's International Development Association (IDA) have jointly approved a remarkable debt relief package of $4.5 billion for Somalia under the Heavily Indebted Poor Countries (HIPC) Initiative Completion Point.
The development marks a significant milestone in Somalia's journey towards economic recovery, paving the way for strengthened financial stability and enhanced prospects for sustainable growth.
The debt relief initiative will alleviate the burden of debt service payments for Somalia, allowing the country to redirect its resources towards critical areas such as infrastructure development, poverty reduction, and job creation.
Somalia's external debt, which stood at 64 percent of GDP in 2018, will now be reduced to less than 6 percent of GDP by the end of 2023.
The debt relief was made possible through contributions from various creditors, including the IMF ($343.2 million), IDA ($448.5 million), African Development Fund (ADF) ($131.0 million), other multilateral creditors ($573.1 million), bilateral and commercial creditors ($3.0 billion), and members of the Paris Club, creditors from the Arab Coordination Group, and other official bilateral creditors.
“Somalia's debt relief process has been nearly a decade of cross-governmental efforts spanning three political administrations. This is a testament to our national commitment and prioritization of this crucial and enabling agenda,” said Somalia’s President, Hassan Sheikh Mohamud.
“For Somalia to move forward in the positive economic direction we all needed, we had to reform our laws, systems, policies, and practices. Reaching the HIPC Completion Point is the fruit of these reforms. When my government committed to the reform program nearly a decade ago, this was the result we envisaged,” he added.
IMF’s Director for the Middle East and Central Asia, Jihad Azour, said Somalia has made significant strides in rebuilding its economy and institutions after a devastating civil war.
“Reaching the HIPC Completion Point is a testament to the Somali authorities’ strong and sustained policy and reform efforts over the past years, despite numerous challenges, as well as the strong support from international partners,” said Azour.
“The Completion Point is a momentous achievement that restores debt sustainability and over time offers access to new external financing to support inclusive growth and poverty reduction. Maintaining sound macroeconomic policies and sustaining the reform momentum remain critical after the Completion Point for Somalia to reap the full benefits of the debt relief.”
The Heavily Indebted Poor Countries (HIPC) Initiative was launched in 1996 by the World Bank and IMF to create a framework in which all creditors, including multilateral creditors, can provide debt relief to the world's poorest and most heavily indebted countries.
The aim of the initiative is to ensure debt sustainability and reduce the constraints on economic growth and poverty reduction imposed by unsustainable debt service burdens. Somalia is the 37th country to reach Completion Point under the HIPC Initiative.
