Somalia

US agrees to write off more than $1.1 billion of Somalia's debt

Somalia President Hassan Sheikh Mohamud. The United States has announced the cancellation of $1.14 billion in outstanding loans for Somalia. (Photo: UN/Kim Haughton)

By Amina Wako | Friday, November 8, 2024

In December 2023, Somalia announced its completion of the HIPC programme, qualifying for $4.5 billion in debt relief.

The United States has announced the cancellation of $1.14 billion in outstanding loans for Somalia, a sum that accounts for about 25 per cent of the nation’s remaining debt.

This move marks the latest step in a series of debt relief efforts that have provided Somalia with critical financial breathing room. The debt cancellation was formalised through an agreement signed on Tuesday, signifying a turning point for Somalia, which has been burdened by debt dating back to Siad Barre’s military dictatorship, which collapsed in the early 1990s and led to decades of civil conflict.

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Hassan Sheikh Mohamud, the president of Somalia, previously stated that the nation was "suffocating under the huge weight of unsustainable debt" due to unpaid interest payments that accumulated "during the painful, prolonged period of state collapse".

The US was Somalia’s largest bilateral creditor, holding roughly 20 per cent of Somalia’s debt in 2018, according to the International Monetary Fund (IMF). US Ambassador Richard Riley, who spoke at the debt relief announcement at the US Embassy in Mogadishu, called it "a great day for both countries," emphasising the significance of the cancellation under the Heavily Indebted Poor Countries (HIPC) Initiative.

“This was the largest single component of the $4.5 billion debt Somalia owed to various countries,” Riley said, crediting the IMF and World Bank-led HIPC programme for its role in driving the relief process.

The HIPC Initiative, a programme specifically designed to assist the world’s poorest countries with unsustainable debt levels, has enabled Somalia to reengage with international financial institutions after decades of exclusion.

In December 2023, Somalia announced its completion of the HIPC programme, qualifying for $4.5 billion in debt relief. With that step, the country’s external debt dropped from a towering 64 per cent of its GDP in 2018 to less than 6 per cent by the end of 2023, according to the World Bank.

Somalia’s Finance Minister Bihi Egeh voiced gratitude in a post on X, acknowledging the “US government and people for their unwavering support of our economic reforms and growth”.

Mohamed Shire, director-general of Somalia’s Ministry of Planning, Investment, and Economic Development, also praised the debt relief as “historic” and “excellent news for Somalia’s ongoing recovery effort”.

The debt forgiveness from the United States follows a pattern of similar initiatives from Somalia’s other major creditors.

In March, the Paris Club, a consortium of creditor nations, agreed to cancel 99 per cent of the $2 billion owed by Somalia, while in June, an agreement with the OPEC Fund for International Development cleared an additional $36 million, supported by a bridging loan from Saudi Arabia.

“The signing of today’s agreement will also unlock new resources from the OPEC Fund for our national development, ”Minister Egeh said at the time.

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