The Paris Club, a group of exceptionally wealthy creditor nations, has declared that it will eliminate 99% of Somalia’s debt. This is a significant boost for the country as it struggles to improve its economy after enduring a 30-year-long conflict.
According to a recent announcement from the Paris Club, a group of top officials from the French Treasury, Somalia’s debt to its creditors (which includes the US, UK, Russia, Norway, and Japan) will be forgiven and cleared by January 2023, totaling $2 billion.
The Paris Club announced that some of Somalia’s debt will be forgiven through voluntary and bilateral agreements with countries it has borrowed from, while the remaining debt will be addressed through the Heavily Indebted Poor Countries Initiative (HIPC), a program by the IMF and World Bank to assist nations with high levels of unmanageable debt.
On X, formerly known as Twitter, Bihi Eged, Somalia’s finance minister, stated that obtaining complete debt relief would significantly impact Somalia’s future and enable the government to allocate funding for essential public services. Somalia’s information minister, Daud Aweis, also acknowledged on X that the agreement is a significant step towards the country’s financial recovery.
The IMF’s managing director, Kristalina Georgieva, also expressed approval for the successful development in Somalia, stating it is a significant step towards economic growth and decreasing poverty.
The UK’s ambassador to Somalia, Mike Nithavrianakis, stated that as one of Somalia’s creditors, the country is prepared to fulfill its obligation of providing full debt relief.
“I am not able to reword”
In December of last year, Somalia became eligible for debt relief under the HIPC program, allowing the country to potentially receive $4.5 billion in relief. This also marks the start of Somalia’s efforts to restore its connections with global financial markets, which have been severed for the past 30 years.
The HIPC program assists heavily indebted countries in restructuring their budgets, increasing transparency, and focusing on reducing poverty in order to prepare for debt relief.
The choice made by the Paris Club signifies the initial significant move towards achieving financial stability for Mogadishu after participating in the HIPC program.
In his column for The Guardian, President Hassan Sheikh Mohamud of the country of Somalia hailed the completion of the HIPC programme in December. He stated that this achievement was no easy feat, requiring 10 years of effort, the involvement of three administrations, two presidents, and four finance ministers, before finally receiving debt relief from the World Bank and IMF boards on December 13.
He stated that the start of actual change for Somalia is through debt relief.
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Somalia’s debt primarily originated during Siad Barre’s military regime, which fell in 1991, and has been collecting interest on the borrowed funds ever since.
According to economist Uweis Abdullahi Ali from the Heritage Institute, a thinktank located in Mogadishu, the debt relief is a significant accomplishment for Somalia. It gives the country the opportunity to restore its credibility and resume its relations with the global financial markets.
Ali stated that despite Mogadishu’s enhanced access to various low-interest loans, donations, and fiscal tools to support the provision of public services, the government must improve its capacity to generate income within the country.
The government must give top priority to using the new fiscal resources for increasing crucial services like education and healthcare, as well as investing in productive ventures that will benefit the domestic economy.
Source: theguardian.com
