Faith Nyasuguta
In a significant move, the United States has agreed to write off over $1 billion in debt owed by Somalia, marking a crucial step forward for the East African nation’s financial stability. This debt cancellation comes as part of a bilateral deal signed on Tuesday by Somalia’s Finance Minister Bihi Egeh and Richard Riley, the US ambassador to Mogadishu. Riley called the occasion a “great day” for Somalia, highlighting the collaborative efforts that led to this milestone.
The agreement forgives approximately $1.14 billion, the largest portion of Somalia’s $4.5 billion debt that was initially reduced through a December accord with the International Monetary Fund (IMF) and World Bank. This prior deal was part of the Heavily Indebted Poor Countries Initiative (HIPC), a global program aimed at helping nations manage unsustainable debt burdens. The move signifies the US’s continued support for Somalia’s progress toward economic sustainability and governance reforms.
Ambassador Riley praised the substantial changes implemented by Somalia, noting, “With the help of the United States and our international partners, Somalia passed new laws, enhanced financial accountability, and adopted sustainable economic practices.” This acknowledgment underlined the reforms Somalia has undertaken to qualify for international support, showcasing a commitment to improved fiscal management and transparency.
Finance Minister Egeh expressed gratitude to the US for its enduring partnership and contribution to Somalia’s economic recovery. In a social media post, he emphasized the importance of US support in helping Somalia achieve stability and growth. The US embassy echoed this sentiment, noting that this debt relief adds to the $1.2 billion in aid provided to Somalia this year for development, security, economic support, and humanitarian relief. It positioned the US as a “steadfast partner” dedicated to the welfare of the Somali people.
Despite these positive developments, Somalia faces ongoing challenges. The World Bank reports that approximately 70% of the Somali population lives on less than $1.90 a day. This severe poverty is compounded by decades of civil conflict, insurgency by the al-Qaeda-linked al-Shabab group, and frequent climate crises such as droughts and floods. These persistent issues indicate the critical need for continued international aid and robust economic policies.
Somalia’s 2025 national budget, approved by parliament just a day before the debt agreement, stands at $1.36 billion, reflecting a nearly 25% increase from the previous year’s budget. This expanded fiscal plan is underpinned by optimistic economic forecasts: a projected growth rate of 3.7% for 2024 and 3.9% for 2025, compared to last year’s 2.8%. However, the finance ministry has cautioned that this growth could be hindered by external factors, such as disrupted grain supplies due to the prolonged war in Ukraine. With 90% of Somalia’s wheat sourced from Russia and Ukraine, the conflict poses a serious risk to food security.
Additionally, the ongoing conflict in the Middle East and its impact on global supply chains present further economic uncertainties for Somalia. These external pressures, coupled with recent droughts, challenge the government’s ability to maintain growth momentum and improve living standards.
Earlier in March, Somalia had already secured a major breakthrough when international creditors, including the Paris Club, agreed to cancel over $2 billion in debt. This achievement followed the nation’s attainment of the “completion point” under the HIPC initiative, which signified that Somalia had met necessary economic and institutional reforms to qualify for comprehensive debt relief.
Somalia’s external debt has dramatically decreased from 64% of its gross domestic product (GDP) in 2018 to an anticipated figure below 6% of GDP by the end of 2023. This reduction is a testament to the country’s persistent efforts toward fiscal discipline and reform, aided by international partners like the US. The latest debt forgiveness deal bolsters these achievements, offering Somalia a firmer foundation to pursue development and address the pressing needs of its population.
As Somalia continues to navigate economic and social hurdles, the partnership with the US and other global alliesremains vital for sustaining growth and ensuring long-term stability.
RELATED:
