DC is the capital of the United States. Somalia has taken the essential procedures to begin receiving debt relief under the improved Heavily Indebted Poor Countries (HIPC) Initiative, according to the International Monetary Fund (IMF) and the World Bank’s International Development Association. Somalia is the 37th country to reach the HIPC Decision Point, as it is termed.
Debt reduction will assist Somalia in making long-term changes for its people by reducing its debt from US$5.2 billion at the end of 2018 to US$557 million in net present value terms (NPV) until it reaches the HIPC Completion Point in around three years. As Somalia continues on its path to stability and development after 30 years outside the international financial system, the immediate normalisation of its relations with the international community will re-open access to critical additional financial resources to strengthen the economy, help improve social conditions, lift millions out of poverty, and create long-term employment for the Somali people.
“I would like to congratulate the Somali government and people on their tireless efforts over the last years that have culminated in this historic event,” said IMF Managing Director Kristalina Georgieva. “Successful reform initiatives have established the groundwork for inclusive economic growth and the provision of services to the country’s most vulnerable citizens.” As Somalia embarks on a new chapter in its history, work must continue to sustain and broaden the implementation of these changes. I am optimistic that Somalia’s people will have a more resilient and affluent future.”
“We applaud Somalia’s efforts to restore stability, engage creditors, and implement a poverty-reduction strategy,” said David Malpass, President of the World Bank Group. “The return of regular funding to Somalia is a significant step forward, and we look forward to continued economic and social growth.”
“The Government and People of Somalia are extremely delighted with the IMF and World Bank Group’s decision, which allows Somalia to resume full engagement with international financial institutions.” This decision represents a watershed moment for Somalia as it continues to push on with its current reforms, as well as its recovery and development agenda,” Hassan Ali Khayre, Prime Minister of the Federal Government of Somalia, stated. “It took a lot of hard work, dedication, and collaboration to get to this point.” The FGS thanks the IMF, World Bank Group, and other partners for their continuous support, as well as the Somali people for their patience and perseverance during this journey.”
In order to reach the HIPC Completion Point, Somalia has committed to maintaining macroeconomic stability, implementing a poverty reduction strategy, and implementing a set of reforms focused on fiscal stability, improving governance and debt management, strengthening social conditions, and supporting inclusive growth. The World Bank and the IMF will continue to collaborate to offer the technical help and policy direction that the authorities require to meet these objectives, including under the new three-year IMF funding arrangement.
Furthermore, the World Bank is exploring a number of new IDA initiatives, with a focus on providing immediate relief to communities affected by flooding, the locust invasion, and preparing for the fast-moving COVID-19 danger. The World Bank Group and the International Monetary Fund thanked their member countries from all regions and income levels, particularly Italy, Norway, Qatar, and the United Kingdom, as well as the EU, for catalysing support and providing the necessary financial resources to help Somalia reach the Decision Point.
The Debt Relief Operation’s Specifications
In NPV terms, Somalia’s public- and publicly insured external debt was assessed at US$5.2 billion at the outset of the HIPC process. Using typical debt relief techniques, the debt is reduced to US$3.7 billion.
In NPV terms, further debt reduction under the improved HIPC Initiative is expected to be worth US$2.1 billion. Official international and bilateral creditors are expected to contribute US$843 and US$1,225 million, respectively, to this total.
By the end of March 2020, creditors of the Paris Club are scheduled to make a decision on debt relief. The United States, Russia, Italy, and France are the four largest Paris Club debtors. Interim debt relief on IMF debt service payable between the HIPC Decision and Completion Points has been agreed by the IMF Executive Board. The profits of financial contributions collected from over 100 IMF members, including many low-income countries, will be used to pay Somalia’s current debt due to the IMF at the HIPC Completion Point.
At the Completion Point, MDRI debt reduction from IDA and the African Development Bank would eliminate all remaining claims.
Once the Completion Point is reached, Somalia’s external debt burden is predicted to drop from around US$5.2 billion (110.7 percent of GDP) in NPV terms by the end of 2018 to US$557 million (9 percent of GDP).
Arrears Clearance Operations at the IMF and the World Bank
Arrears to IDA were paid off on March 5, 2020, thanks to bridge financing granted by the Norwegian government and refunded using earnings from a Development Policy Grant.
Arrears to the IMF were cleared on March 25 with the use of bridging finance from the Italian government, which the authorities reimbursed using the new IMF financial arrangement’s front-loaded access.
The African Development Bank’s arrears were paid on March 5, 2020, thanks to bridging finance given by the UK government and a contribution from the EU. The proceeds of a Policy Based Operation Grant were used to repay the UK bridge loan.
The HIPC Initiative is a programme that aims to help low-income
The HIPC Initiative was launched in 1996 by the World Bank and the International Monetary Fund to create a framework in which all creditors, including multilateral creditors, can provide debt relief to the world’s poorest and most heavily indebted countries in order to ensure debt sustainability and reduce the constraints on economic growth and poverty reduction imposed by these countries’ unsustainable debt-service burdens. So far, 37 HIPC countries, including Somalia, have reached their decision points, with 36 having completed the process.
The MDRI is a non-profit organisation that promotes
The Multilateral Debt Relief Initiative (MDRI) was established in 2005 with the goal of further reducing debt in low-income countries and providing more resources to assist them in achieving their development goals. When qualifying nations reach the HIPC Initiative Completion Point, three international organisations – the World Bank’s IDA, the IMF, and the African Development Fund – give 100 percent debt relief on eligible obligations.