Tuesday November 5, 2024
Somalia’s Minister of Finance, Bihi Iman Egeh, delivers remarks alongside US Ambassador to Somalia, Richard Riley, during a press conference at the US Embassy in Mogadishu. The event highlighted the recent announcement of $1.14 billion in debt forgiveness for Somalia, marking a significant step in the country’s economic recovery efforts. CREDIT/ SONNA
Mogadishu (HOL) — The United States has forgiven $1.14 billion in debt owed by Somalia, providing a boost as it works to stabilize its economy and rebuild essential public services. US Ambassador to Somalia Richard Riley announced the debt relief in Mogadishu, describing it as a clear sign of America's commitment to Somalia's future.
"This debt forgiveness is a testament to our unwavering commitment to support the Somali people on their journey toward a brighter future," Riley stated. He noted that this relief is part of a larger $1.2 billion assistance package from the US this fiscal year, focusing on development, economic stability, security, and humanitarian aid.
Somalia achieved its first major economic milestone by receiving $4.5 billion in debt relief under the Heavily Indebted Poor Countries (HIPC) Initiative, approved by the International Monetary Fund (IMF) and the World Bank's International Development Association (IDA). The relief immediately reduced Somalia's external debt from 64% of its GDP in 2018 to less than 6% by the end of 2023, opening new avenues for economic growth and poverty reduction.
The debt cancellation comes on the heels of a major agreement from the Paris Club, a coalition of creditor nations, which in March 2024 announced the cancellation of 99% of Somalia's debt, amounting to approximately $2 billion. The decision marks a turning point for Somalia, which has endured decades of economic hardship and instability.
Somalia's financial challenges are deeply rooted in its tumultuous history, particularly the significant debt accumulated during Siad Barre's military regime, which collapsed in 1991. Today, over two-thirds of the Somali population lives on less than $2.15 a day, underscoring the urgent need for comprehensive economic reform and substantial financial assistance to combat pervasive poverty.
Minister of Finance Bihi Iman Egeh welcomed the US support, stating, "This agreement will transform Somalia's future, allowing our government to allocate resources to essential public services." The relief is expected to provide vital funds for education, healthcare, and infrastructure development.
However, challenges persist. Somalia continues to grapple with security threats from Al-Shabaab and the impacts of climate change, which threaten food security and overall stability. Experts warn that while debt relief is essential, it must be accompanied by robust domestic reforms to ensure sustainable growth. Economist Uweis Abdullahi Ali emphasized the need for the Somali government to enhance its capacity for domestic revenue generation.
Looking to the future, debt forgiveness is viewed as a catalyst for attracting private investment, especially in agriculture. The International Monetary Fund (IMF) has upgraded Somalia's GDP growth forecast, projecting a 4% growth rate for 2024 and 2025, buoyed by agricultural resurgence and remittances. Business leaders like Hersio Abdulle Siad are optimistic, stating, "We're looking forward to investors coming, particularly in the farming sector, so we can produce more and sell more both domestically and internationally."
Somalia's fiscal performance remains steady, with a projected overall deficit of 0.2% of GDP for 2024, while the government aims to increase domestic revenue.
The planned reintroduction of the Somali Shilling, aimed at enhancing financial stability and inclusion, represents a significant step toward economic reform. However, its full implementation will depend on external financing and effective governance. Somalia's recent admission into the East African Community is expected to open new markets and enhance its potential for economic diversification.