THE AFRICA BAZAAR STAFF
February 13, 2020
The International Monetary Fund and World Bank Group have cleared the path for Somalia‘s government to receive debt relief for most of its $5.3 billion arrears under the enhanced Heavily Indebted Poor Countries program.
The decision came after the executive Boards of the IMF and World Bank, after meeting on two consecutive days on February 12 and 13 to mull Somalia’s potential eligibility for debt relief through the HIPC program, agreed that the Somalia’s government have made “sustained commitment to economic and institutional reforms under challenging circumstances,” which pave the path towards forgiveness of most of Somalia’s debt, which measured US$5.3 billion at the end of 2018.
IMF’s Managing Director Kristalina Georgieva said the “agreement by the IMF Executive Board that Somalia can be eligible for debt relief under the Enhanced HIPC Initiative marks a historic moment. It provides a clear recognition of Somalia’s sustained commitment to key economic and financial reforms under consecutive staff-monitored programs with the IMF. Helping Somalia achieve debt relief and unlock access to the needed resources to increase growth and reduce poverty is a key priority for the IMF. I am very grateful to our members for all their support in this endeavor.”
David Malpass, the President of the World Bank Group also noted the significance of granting debt relief eligibility to Somalia “an important step towards Somalia resuming financing from international financial institutions.”
“I congratulate Somalia for embracing important reforms that can do much to encourage sustainable poverty reduction, and I thank our international partners who have worked with us to bring Somalia to this important stage. We are glad to have worked closely with the Federal Government of Somalia in assisting their progress over the past few years and look forward to opportunities for greater World Bank Group support for the Somali people,” Malpass said in a statement.
The HIPC initiative plan, a financial structure created by the IMF and World Bank that enables creditors, including multilateral creditors to provide debt relief to the world’s poorest and most heavily indebted countries, and as results reduce the constraints on economic growth and poverty reduction imposed by the debt-service burden. So dar, 36 countries have participated in enhanced HIPC plan.
The Somalia authorities still has to complete the process to the HIPC Decision Point, and meet the IMF’s Staff-Monitored Program satisfactory objectives as well as the Somali government authorities will need to either clear their arrears to multilateral creditors or agree a strategy to clear them.
The World Bank staff expect to present the operation for clearing the arrears to the International Development Association by the end of this month. In addition, the agreement on the reforms that Somalia will need to implement to reach the Completion Point—the floating Completion Point triggers—will need to be finalized taking account of the views expressed by the Executive Boards. Prompt action on these items could result in Somalia reaching the Decision Point by the end of March 2020.
Once Somalia has reached the Completion Point, it would qualify for unconditional debt relief under the HIPC Initiative, and for debt relief under the Multilateral Debt Relief Initiative (MDRI) from the World Bank’s IDA and the African Development Fund (AfDF), together with beyond-HIPC assistance from the IMF. Paris Club creditors are also expected to provide further beyond-HIPC assistance at the Completion Point.