- Somalia has been pushing for the cancellation of its ballooning debt for over 4 decades.
- The consensus cancels a total of US$ 1.4 billion and reschedules around US$ 1.3 billion.
- The COVID-19 pandemic made this the first-ever “virtual” negotiating meeting of the Paris Club.
A heavy sigh of relief for Somalia as representatives of the Paris Club creditor countries agreed on the 31st March, 2020 to restructure its external public debt.
What led to a consensus?
This agreement was concluded under the so called “Cologne terms” designed by the Paris Club to provide interim debt relief as part of the Heavily Indebted Poor Countries (HIPC) Initiative. This led to the immediate non-ODA debt cancellation of US$ 1.4 billion in debt owed by Somalia to Paris Club creditors.
Somalia is expected to reach its HIPC Completion Point by 31st March 2023 or earlier and receive the remainder of the debt reduction envisioned under the enhanced HIPC Initiative already endorsed by the international community in 1999. On an exceptional basis, considering Somalia’s very limited capacity of payment, and provided that it continues to implement satisfactorily an IMF supported program, no payments are expected from Somalia until at least 31st March 2024.
Somalia will focus on Priority investments
Somalia’s economic program is supported by a three-year arrangement under the Poverty Reduction and Growth Facility and an Extended Fund Facility, both approved by the Board of the International Monetary Fund on 24 March 2020. Somalia reached the decision point under the enhanced Heavily Indebted Poor Countries (HIPC) Initiative in March 2020.
Somalia is committed to devote the resources that otherwise would have gone to Paris Club creditors to priority investments, as identified in its ninth National Development Plan (NDP-9). Somalia is also committed to seek comparable debt relief from non-Paris Club creditors.
This agreement consolidates around US$ 2.7 billion, most of which is composed of arrears and late interests. It cancels a total of US$ 1.4 billion and reschedules around US$ 1.3 billion. These rescheduled amounts will be addressed for debt relief when Somalia reaches Completion Point.
The representatives of the Paris Club members expressed their commitment to implement the final component of debt relief contemplated under the enhanced HIPC Initiative as soon as Somalia meets the conditions to reach the Completion.
The IMF and the World Bank currently estimate that those creditors will then have delivered total debt relief of approximately US$ 1.7 billion (in net present value terms). This amount does not include additional efforts that Paris Club members intend to provide at the completion point.
Somalia finance minister Abdirahman Duale Beyle welcomed the debt cancellation and vowed to continue the economic reforms to held rebuild the country.