Somalia’ Debts of $5 Billion: Lack of Political Honesty & International Coordination? A Barrier to Progress

Mareeg.com-The international attention and support for Somalia’s recovery has been instrumental, strategically necessary and critical since the first Somali London Conference 2012. The recent Mogadishu International Conference on Somalia this week is a testament to this relentless political and economic capital support for Somalia’s recovery. The fact that such international conference for Somalia was convened in Somalia’s capital city speaks volumes of the combined progress that is being made on many fronts.

Within a space of a week the international community pledged further $500 million support package for Somalia’s ongoing development and recovery. This renewed confidence and continued support from the international community is much needed and critical for international peace and security. The Somali populations and its leaders are, I am sure, grateful for the unwavering commitment and desire to see Somalia within the fold of functioning and forward looking global community of nations.

While there has been much necessary progress on the ground spearheaded by the international community and Somalia’s leaders, there is one critical area of focus that needs further evaluation and international action. This month, the Somali Prime Minister HE Hassan Ali Kheyre alluded to Somalia’s international debts of $5 Billion as an impediment for continued progress if Somalia does not fulfil its international obligation to its historical creditors. Although the Prime Minister is right and responsible in his commitment to find solutions for Somalia’s debts, I question the coordination, transparency, effectiveness of the international community and Somalia’s leaders to find a durable solution to Somalia’s debt, which were historical in nature, complex and misplaced by Somalia’s previous Socialist dictatorship in the 1970s and 1980s through white elephant projects.

I recognise the international community has made inroads and at the recent UK Government sponsored London Somali Conference May 2017 where an agreement was reached to help Somalia clear its debts to international institutions within the context of the Heavily Indebted Poor Country Debt Relieve Initiative, a multiyear processes intended for debt repayment. During the conference where I was present Somalia’s President HE Mohamed Abdullahi Farmajo stressed the requirement for arrears clearance and normalisation of relations with international institutions.

While I respect and recognise the diplomatic dance around Somalia’s debts, it is my view Somalia’s debts and the response of the international community and financial institutions lack political honesty and a credible framework for finding a durable and urgent solutions to this subject matter. Somalia is not paying towards these debts, so there is no cost to their budget in debt payments. But there is a significant opportunity cost in that the debts on Somalia’s books means Somalia is missing out on significant resources that could be saving lives. The way the debt is being treated by international donors means it is potentially a barrier to accessing new grants and loans from the World Bank, African Development Bank and new loans from various institutions, including the IMF and Arab Monetary Fund.

Somalia, among the poorest countries in the world, is one of three remaining countries that are eligible for comprehensive debt relief under the HIPC Initiative (the other two are Sudan and Eritrea). Somalia is estimated to have over $5 billion in external debt, with Paris Club creditors representing the largest single bloc (roughly $2.5 billion), followed by non-Paris Club bilateral creditors (roughly $1.5 billion) and multilateral creditors (roughly $1.5 billion). Under the HIPC Initiative and the complementary Multilateral Debt Relief Initiative, virtually all of Somalia’s multilateral debt and the vast majority of its bilateral debt would be eliminated.

It is important to note that none of this debt is currently being serviced, and no creditor actually expects to be paid. While Somalia’s government should be applauded for its ambition and recognition of the importance of normalising relations with international financial institutions and the broader financial community through the debt relief process, such task is monumental commitment that is a barrier to progress, misplaced commitment as well as prioritisation from the international community.

Despite having no expectation that Somalia can pay the debt, creditors have not cancelled it (though they probably have written it off internally). They will only consider doing so through a convoluted and technical process called the Heavily Indebted Poor Countries Initiative, completion of which also gives access to debt relief known as the Multilateral Debt Relief Initiative.

To put it in perspective, Somalia’s combined yearly budget for all the Federal regions included is roughly the size of Manchester United Football Club annual budget of $500million. To have $5 Billion of international debt hanging over Somalia’s recovery and development short changes all the international community’s effort, commitments and progress that has already been made in recent years. It is time for meaningful international negotiation; political honesty and implementation to give Somalia a clean bill of financial health by cancelling all its debts under the framework of Multilateral Debt Relief Initiative. Somalia’s leaders should also refrain from diplomatic dance on a critical subject that hampers Somalia’s short term and long term recovery and prospects. The table below illustrate the list of Somalia’s external international debt totalling $5 Billion:

Table: Somalia’s International Creditors

Creditor Debt claimed as of end-2016 (in nominal terms)
Multilateral $1,443 million
World Bank $484 million
IMF $319 million
Arab Monetary Fund $280 million
Arab Fund for Economic and Social Development $150 million
AfDB $133 million
OPEC Fund for International Development $35 million
International Fund for Agricultural Development $29 million
Islamic Development Bank $13 million
Paris Club $2,392 million
United States $993 million
Italy $582 million
France $425 million
Russia $145 million
Japan $117 million
United Kingdom $81 million
Spain $39 million
Netherlands $6 million
Denmark $2 million
Norway $2 million
Non-Paris Club $1,298 million
United Arab Emirates $832 million
Kuwait Fund and Central Bank $271 million
Saudi Arabia $108 million
Iraq $66 million
Bulgaria $9 million
Libya $5 million
Romania $3 million
Algeria $2 million
Serbia $2 million

Total $5.1 billion

By AbdiAbdihafid Mahamud Jama
London England
E-mail address Abdihafid@gmail.com
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Mareeg senior news editor since 2001 and he can be reached at news@mareeg.com