The Paris Club, which consists of the most prosperous countries that lend money, has declared that 99% of Somalia’s outstanding debt will be waived. This is a significant aid as the nation strives to rebuild its economy amidst a long-standing 30-year conflict.
The Paris Club, led by top officials from the French Treasury, issued a statement declaring that creditors of Somalia, such as the US, UK, Russia, Norway, and Japan, have agreed to waive the country’s $2 billion debt to club members beginning in January 2023.
The Paris Club stated that some of Somalia’s debt will be eliminated through voluntary negotiations between the individual countries it has borrowed from. The remaining debt will be addressed through the Heavily Indebted Poor Countries Initiative (HIPC), a program by the IMF and World Bank intended to help struggling nations with high amounts of debt.
On X, previously known as Twitter, Somalia’s finance minister Bihi Eged commented on achieving full debt relief: “This will greatly improve Somalia’s future and provide our government with resources to invest in essential public services.” The country’s information minister, Daud Aweis, also stated on X that the agreement represents a significant step towards Somalia’s financial recovery journey.
The International Monetary Fund’s managing director, Kristalina Georgieva, also expressed support for the advancement, stating that it is a significant step towards improving the economy and decreasing poverty in Somalia.
The UK, one of Somalia’s creditors, is prepared to fulfill our promise of complete debt forgiveness, according to Mike Nithavrianakis, the British ambassador to Somalia.
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In December, Somalia met the requirements for debt forgiveness through the HIPC program. This allows them to potentially receive up to $4.5 billion in debt relief and start mending their relationship with global financial markets, which had been cut off for 30 years.
The HIPC program assists heavily indebted countries in revamping their budgets, promoting transparency, and addressing poverty as they work towards debt relief.
The Paris Club’s decision marks a significant milestone in Mogadishu’s journey towards financial normalization after participating in the HIPC program.
In a column for the Guardian, President Hassan Sheikh Mohamud of Somalia celebrated the country’s completion of the HIPC programme in December. He described the process of obtaining debt relief from the World Bank and IMF, which spanned almost ten years and involved three different administrations, two presidents, and four finance ministers.
He stated that the starting point for actual change in Somalia is “debt relief.”
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Most of Somalia’s debt was acquired during the time of Siad Barre’s military rule, which ended in 1991. Since then, interest has been accruing on the loans.
According to economist Uweis Abdullahi Ali, who works at the Heritage Institute in Mogadishu, the recent debt relief is a significant accomplishment for Somalia. This will allow the country to re-establish credibility and strengthen its relationships with global financial markets.
Ali stated that although Mogadishu currently has access to a broader range of concessional loans, grants, and financial resources to support the delivery of public services, the government should focus on improving its capacity to generate revenue within the country.
The government must focus on allocating resources towards increasing important services like education and health, as well as investing in productive ventures that will benefit the local economy.
Source: theguardian.com
