Somalia reached an agreement to cancel $4.5 billion of debt with international lenders, raising hopes that the war-torn nation can start to attract investment and access financial markets after decades of economic stagnation.
Somalia’s debt cancelation under the Group of 20 leading economies’ debt-relief initiative will result in its external debt falling to less than 6% of gross domestic product by the end of this year, from 42% previously, the International Monetary Fund and World Bank said in a joint statement on Wednesday.
“Somalia has made significant strides in rebuilding its economy and institutions after a devastating civil war,” said Jihad Azour, the IMF’s director for the Middle East and Central Asia. “The Completion Point is a momentous achievement that restores debt sustainability and over time offers access to new external financing to support inclusive growth and poverty reduction,” he said, referring to the country’s success in implementing reforms.
Ali Yassin Sheikh Ali, deputy governor of Somalia’s central bank, said the relief will allow Somalia to access debt markets and start growing its economy after decades of being frozen out of the global economy.
“It is anticipated that the completion of the debt relief process will result in economic growth for Somalia, resulting in additional jobs for Somalia and international investment,” he said in an interview.
To achieve its debt cancellation, Somalia achieved at least 13 targets including on public financial management, domestic revenue mobilization, governance and statistical reporting.
The IMF executive board granted a waiver for the adoption and implementation of a single import duty tariff schedule at all ports.
Somali Finance Minister Bihi Egeh said Somalia improved procurement processes and streamlined the way it pays security forces and civil servants, a step that will help clean up public sector finances.
Over the past decade, Somali increased annual domestic revenue to $345 million from $69 million, he said.
“It’s still low but going in the right direction,” Egeh said.