Following significant measures to increase domestic revenue collection and transparency in the administration of state finances, Somalia is on track to get total debt relief from the International Monetary Fund (IMF) and other lenders in December of this year.
Beyond the most recent evaluation of Somalia’s performance under the Extended Credit Facility agreement, the lender stated that despite several challenges, the East African country has made great progress in implementing reforms to revive the economy.
“The reforms, which are supposed to ensure good use of public resources to maximally benefit the Somali citizens, and to boost economic growth, which in turn is expected to enable the creation of more job opportunities, are already bearing fruits,” the IMF relayed.
In spite of the country’s struggles with drought, floods, food shortages, weak remittances, and unstable security conditions in some regions, which have hurt economic performance, this is the case.
Despite the difficulty, Somalia has virtually all the requirements satisfied to be eligible for the entire debt relief, and lenders have already agreed to forgive up to 76.8% of Somalia’s total debt, but more work has to be done, according to Laura Jaramillo, who headed the IMF staff.
“Building on progress so far, key policy priorities would be to continue strengthening domestic revenue, public financial management, financial deepening and financial inclusion, governance, and statistics,” Ms. Jaramillo stated.
“Timely financing and capacity development support from development partners is essential for the successful implementation of the authorities’ reform strategy,” she added.
Full debt relief will reduce Somalia’s loan load from its current $3.3 billion to $557 million, or roughly 10% of its GDP. This will provide Somalia more breathing room to cope with the various problems that are holding down economic growth and development.
In March 2020, Somalia passed the threshold for IMF debt relief under the HIPC project, enabling it to get partial debt relief, bringing its debt stock down from $5.2 billion to $3.7 billion.
The IMF, the World Bank, the African Development Bank, the Inter-American Bank, and the 22 members of the Paris Club, together with Somalia’s other lenders who will agree to do so, will all relieve Somalia of debt upon the HIPC initiative’s completion.
It will join the Democratic Republic of the Congo, Burundi, Rwanda, Tanzania, Uganda, Ethiopia, and other nations that are now among the 31 least developed nations to receive aid.