Somalia has successfully negotiated a debt relief package worth $4.5 billion from international creditors. The International Monetary Fund (IMF) and the World Bank jointly announced on Wednesday this debt forgiveness initiative, which falls under the Heavily Indebted Poor Countries (HIPC) program overseen by both organizations.
IMF, World Bank Approve Debt Forgiveness for Somalia
Following the HIPC Completion Point approval by the executive boards of the IMF and the World Bank's International Development Association (IDA), Somalia's external debt is expected to drop substantially, decreasing from 64% of GDP in 2018 to less than 6% of GDP by the end of 2023.
According to the Associated Press, the national debt of Somalia currently exceeds $5 billion. The debt reduction is anticipated to pave the way for Somalia to access additional financial resources crucial for strengthening its economy, reducing poverty, and promoting job creation.
In a joint statement, the IMF and World Bank outlined the breakdown of the debt service relief provided to Somalia.
The debt service relief provided by the IMF is worth $343.2 million, the IDA is $448.5 million, the African Development Fund (ADF) is $131 million, other multilateral creditors are worth $573.1 million, and bilateral and commercial creditors are $3 billion.
Bilateral creditors include Paris Club members, creditors from the Arab Coordination Group, and other official bilateral creditors.
IMF, World Bank Say Somalia Demonstrates Commendable Progress
The executive directors of both the IMF and World Bank determined that Somalia has made satisfactory progress in fulfilling the requirements to reach the HIPC Completion Point.
Despite facing substantial challenges, including the global COVID-19 pandemic, prolonged drought, desert locust infestations, and other crises, Somalia has maintained a track record of sound macroeconomic management, according to the IMF and World Bank.
"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," Somalia's President Hassan Sheikh Mohamud said in a statement.
"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.
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