Somalia is poised to receive significant debt relief from World Bank and IMF

In a historic decision, Somalia's multilateral and bilateral lenders are poised to cancel the country's $4.5 billion external debt, significantly paring down the nation's debt burden to a mere $557 million from its previous peak of $5.2 billion. The announcement is expected to be made in Washington D.C. later today.

Led by the World Bank and the International Monetary Fund (IMF), this move confirms that Somalia has fulfilled all requirements, reaching the Heavily Indebted Poor Countries (HIPC) Completion Point.

Speaking in New York yesterday ahead of today's debt relief announcement, President Hassan Sheikh Mahamud remarked, “this marks an another significant stride. This financial freedom is expected to catalyze economic growth, attract investments, and enable the government to allocate resources towards public services and infrastructure development.”

The substantial debt relief comes from various sources, with commercial creditors contributing $3 billion, followed by multilateral creditors ($573.1 million), the World Bank's International Development Association ($448.5 million), the IMF ($343.2 million), and the African Development Fund ($131 million).

On 25 March 2020, the Bretton Wood institutions granted Somalia eligibility for debt relief under the Enhanced HIPC Initiative. The top five creditors holding Somalia's debt are the US (22%), Italy (13%), France (9%), the World Bank (11%), and the International Monetary Fund (IMF) (7%).

Despite Somalia's external debt being less than $2 billion when the state collapsed into civil strife in 1990, accumulated arrears, penalties, and interest rates have caused it to balloon to over $5 billion.

The HIPC initiative, established by the IMF and World Bank in 1996, aims to provide debt relief to the world's poorest and most heavily indebted countries, reducing economic constraints caused by the debt-servicing burden. Somalia now joins the ranks of the 37 countries that have reached the HIPC completion point.