Somalia is on course to receive a full debt relief from the International Monetary Fund (IMF) and other lenders in December this year, after making important reforms to boost domestic revenue collection and transparency in management of public finances.
After the latest review of Somalia’s performance under the Extended Credit Facility arrangement, the lender said the Horn of Africa country has made significant progress in implementing recommended reforms meant to rebound the economy, despite facing multiple headwinds.
“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 lender said.
This is despite the country grappling with drought, floods, food insecurity, subdued remittances, and volatile security situation in some parts of the country, which have weighed down economic performance.
Laura Jaramillo, who led the IMF staff, said the challenge notwithstanding, Somalia has met nearly all the conditions needed to qualify for the full debt relief and lenders have already agreed to remission of up to 76.8 percent of Somalia’s total debt, but more needs to be done.
“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 said in a statement after meeting the Somali finance minister and the governor of the Central Bank of Somalia.
“Timely financing and capacity development support from development partners is essential for the successful implementation of the authorities’ reform strategy.”
The full debt relief will drop Somalia’s loan burden to $557 million – about 10 percent of its gross domestic product – from the current $3.3 billion, allowing it headroom to better deal with multiple issues slowing economic growth and development.
Somalia reached the decision point for IMF debt relief under the Heavily Indebted Poor Countries (HIPC) initiative in March 2020, allowing it to get partial debt relief, reducing its debt stock from $5.2 billion to $3.7 billion.
On reaching the completion point of the HIPC initiative, Somalia will get debt reliefs from the IMF, the World Bank, the African Development Bank, the Inter-American Bank and the 22 members of the Paris Club, alongside its other lenders who will volunteer to do so.
It will join – among other countries – Burundi, Rwanda, Tanzania, Uganda, Ethiopia and the Democratic Republic of Congo, which are currently among the 31 least developed countries that have received the relief.