THE GOVERNMENT will be pitching a proposal to accelerate the country’s debt relief process in the upcoming London conference to enable the country access much needed credit from the international market to among others fund President Mohamed Farmaajo’s economic blue print and realise a more stable Somalia.
With a debt burden of about $5.5 billion which accounts for 93% of the country’s gross domestic product (GDP), Somalia is forced to rely on donor support, diaspora remittances and the domestic market to fund its national budget while direct donor financing to the government stands at a paltry 3%.
To turn around this scenario, the Federal Government in proposals to be debated during the May 10-11 Conference is fronting a 2 year period to secure the country a completion point status under the High the Heavily Indebted Poor Countries (HIPC) Initiative.
“Somalia’s debt stands at $5.5 billion from 28 countries and institutions. We are unable to secure any loans unless this debt is forgiven. Therefore, we have scheduled that Somalia must work on qualifying for debt relief and that goal can be achieved in two years,” a statement from Villa Somalia website reads.
Somalia currently is eligible for HIPC initiative assistance but is yet to start the process. The IMF/World Bank HIPC Initiative which also includes significant number of Paris Club creditors launched in 1996 seeks to ensure that no poor country faces a debt burden it cannot manage.
The second step in debt relief process (completion point) qualifies the country to receive full and irrevocable reduction in debt available under the HIPC Initiative. But Somalia will first have to meet step one (decision point) threshold which involves eligibility to the World Bank’s International Development Agency, which provides interest-free loans and grants to the world’s poorest countries. This will start with clearing loans owed to the World Bank and the IMF.
As of August 30, 2015, Somalia’s long standing arrears to the IMF stood at about $331.7 million while the World Bank is demanding $287.4 million from the Horn of Africa country. Arrears to the African Development Bank as of the same date was $94.5 million.
In a report last week, the Financial Governance Committee advised the government to clear arrears to the International Financial Institutions as a first step to towards the HIPC debt process. “The FGC recommends that the FGS and its creditors develop a milestones-based debt relief roadmap setting out how Somalia can qualify for the Heavily Indebted Poor Countries (HIPC) debt relief process, with arrears clearance to IFIs as a first step,” the report reads.
The newly adopted National Development Plan needs to be strengthened to qualify as an interim Poverty Strategy Paper (PRSP), the FGC recommends. A PRSP developed through a broad based process is a basis for debt reduction at the decision point but its adoption and implementation for one year enables the country to move to the completion stage which translates to debt relief.
The FGC also called on the government to push for increased direct donor financing to enable it support the state building efforts and grow the economy to allow for debt repayments.