Somalia is eligible for debt relief following economic and institutional reforms by authorities, the Executive Boards of the International Monetary Fund (IMF) and World Bank announced Thursday.
The debt owed by Somalia to external creditors is estimated to be more than $5 billion. Somalia owes the single biggest debt, $1 billion, to the United States.
In a statement issued after board meetings Feb. 12 and 13, respectively, to consider Somalia’s eligibility, the two financial powers endorsed Somalia’s eligibility for debt relief under the Heavily Indebted Poor Countries (HIPC) Initiative.
Countries that become eligible for this initiative have to commit to economic and financial reforms as well as poverty reduction. For several years now, Somalia has been under IMF-staff monitored programs that helped Somalia mobilize revenue and tracked financial records of the government. The monitoring encouraged the two biggest international financial institutions to come to the decision, Somali officials say.
In the statement issued Thursday, IMF Managing Director Kristalina Georgieva said the decision “marks a historic moment.”
World Bank President David Malpass said, “Today was an important step towards Somalia resuming financing from international financial institutions, including IDA [International Development Association], our fund for the poorest countries.”
Malpass said ongoing IMF-staff monitored programs would need to be “satisfactory” for Somalia to complete the journey.
He said the World Bank plans to present the operation for clearing the arrears to the IDA by the end of this month.
The Prime Minister Hassan Ali Khaire welcomed the statement from IMF and World Bank.
“Extremely pleased to achieve this historic milestone in record time,” Khaire wrote via Twitter. “Grateful to the Somali people for their perseverance as we instituted challenging reforms. Our partners, as well for their steadfast support in seeing this through with us.”
Professor Hussein Warsame of Calgary University, Canada, says this move by IMF and World Bank paves the way for Somalia to get grants and loans in order to invest in education, health, roads and ports.
“Since the Horn of Africa is integrating, and we are in a position to establish trading partnership with Ethiopia, it’s important we take advantage and build our ports and road networks to Ethiopia,” he told VOA Somali.
By connecting the roads, ports, education and health services, this reduces poverty, this will be the big benefit, Warsame said.