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The International Monetary Fund (IMF) and the World Bank’s International Development Association (IDA) have jointly approved a substantial debt relief package amounting to $4.5 billion for Somalia under the Heavily Indebted Poor Countries Initiative (HIPC).
This significant financial assistance is the result of a collaborative effort, involving not only the IMF and the World Bank but also the African Development Fund, along with various other multilateral, bilateral, and commercial creditors. The coordinated debt service relief efforts were highlighted in a joint statement issued by the IMF and the World Bank.
IMF Managing Director Kristalina Georgieva lauded Somalia’s unwavering commitment to economic reforms, stating, “This is a testament to Somalia’s steadfast commitment to economic reforms. The IMF will continue to build on our strong partnership with Somalia.”
President Hassan Sheikh Mohamud of Somalia expressed gratitude for the debt relief, acknowledging the comprehensive governmental efforts spanning nearly a decade. He remarked, “Somalia’s debt relief process has been nearly a decade of cross-governmental efforts spanning three political administrations. This is a testament to our national commitment and prioritization of this crucial and enabling agenda.”
The Heavily Indebted Poor Countries Initiative, established to provide a framework for all creditors, including multilateral creditors, aims to offer debt relief to the world’s poorest and most heavily indebted countries. The overarching goal is to ensure debt sustainability, reduce constraints on economic growth, and alleviate poverty by mitigating unsustainable debt service burdens.
Somalia’s achievement of reaching the Completion Point under the HIPC Initiative marks a significant milestone, making it the 37th country to do so. The debt relief has resulted in a remarkable reduction of Somalia’s external debt, plunging from 64% of GDP in 2018 to less than 6% of GDP by the end of 2023.
Anticipated to provide Somalia with a crucial economic boost, this debt relief will enable the nation to focus on sustainable development and poverty reduction, marking a pivotal moment in Somalia’s economic trajectory.
Many African countries currently find themselves struggling with debt sustainability compounded by recent global crises and rising interest rates. A wave of defaults threatens countries such as Kenya and Ethiopia. The country of Ghana recently defaulted on its international debt obligations.