IN a significant step towards stabilising its economy, Somalia announced that the United States has cancelled over $1.1bn of its outstanding debt, marking a quarter of the country’s remaining financial obligations. This agreement continues a series of debt-relief measures from Somalia’s creditors, aimed at supporting the nation’s post-conflict recovery.
Most of Somalia’s debt originated under the military dictatorship of Siad Barre, which collapsed in the early 1990s, triggering a devastating civil war and years of state dysfunction. For decades, interest accumulated on this debt, suffocating Somalia’s financial capacity and hindering development. President Hassan Sheikh Mohamud welcomed the US agreement, noting it brings relief from the ‘unsustainable debt’ that had weighed heavily on the country.
On Tuesday, Somalia’s Finance Minister, Bihi Egeh, and US Ambassador Richard Riley signed the agreement in Mogadishu, officially formalising the cancellation of $1.14bn in debt. ‘We deeply appreciate the US government and people for their enduring support for our economic reforms,’ Egeh said, underscoring the deal’s significance in a post on X (formerly Twitter).
Progress in debt relief efforts
This agreement with the US represents a milestone within the broader debt-relief programme for Somalia, which has sought support through the Heavily Indebted Poor Countries (HIPC) Initiative. This initiative, led by the IMF and the World Bank, helps impoverished countries manage unsustainable debt loads by facilitating debt forgiveness. Somalia completed its HIPC programme in December 2023, which entitled it to $4.5bn in debt relief and reinstated its access to global financial institutions after decades of isolation.
At the signing ceremony, US Ambassador Riley expressed optimism for Somalia’s future, saying, ‘This agreement brings Somalia closer to financial independence and strengthens ties between our nations.’ He highlighted Somalia’s commitment to reforms, citing the country’s efforts to introduce new laws and improve accountability in its financial systems.
Building confidence with international creditors
Somalia’s debt relief journey received additional support from other creditors. In March, the Paris Club, a coalition of major creditor nations, announced it would write off 99 percent of Somalia’s $2bn debt, significantly reducing the country’s external liabilities. This was followed by an agreement with the OPEC Fund for International Development in June, which waived an additional $36m, backed by a bridging loan from Saudi Arabia.
Somalia’s debt-to-GDP ratio has since dropped from 64 percent in 2018 to less than 6 percent by the end of 2023, according to World Bank data, a crucial shift that strengthens Somalia’s financial position. Finance Minister Egeh noted that the agreement with OPEC will now unlock additional resources to fund Somalia’s national development projects.
Challenges remain for full economic recovery
While the debt relief marks a historic turning point, analysts caution that Somalia faces ongoing challenges. Harry Verhoeven, an expert on the political economy of the Horn of Africa, said, ‘The debt forgiveness is transformative, enabling Somalia to secure public financing more readily from multilateral banks.’ However, he also highlighted that private investors may remain wary, given persistent concerns about Somalia’s financial governance and political stability.
With a lighter debt burden and renewed access to financial resources, Somalia’s leadership now faces the critical task of sustaining reform efforts to ensure stability and economic resilience for the future.
