The Executive Boards of the International Monetary Fund (IMF) and World Bank met, on February 12 and 13, respectively, to consider Somalia’s eligibility for debt relief under the Enhanced Heavily Indebted Poor Countries (HIPC) Initiative. The Executive Boards commended the authorities’ sustained commitment to economic and institutional reforms under challenging circumstances and agreed that Somalia is eligible for assistance under the Enhanced HIPC Initiative based on a preliminary assessment. This assessment is an important step towards forgiveness of most of Somalia’s debt, which measured US$5.3 billion at the end of 2018.
Following the IMF Executive Board discussion on Somalia on February 12, 2020, Kristalina Georgieva, Managing Director and Acting Chair, said:
“Today’s 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.”
Following the World Bank Executive Board discussion on February 13, 2020, David Malpass, World Bank Group President, said:
“Today was an important step towards Somalia resuming financing from international financial institutions, including IDA, our fund for the poorest countries. 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.”
To complete the journey to the HIPC Decision Point, Somalia’s performance under the current IMF Staff-Monitored Program (SMP) will need to be confirmed as satisfactory, and the authorities will need to either clear their arrears to multilateral creditors or agree a strategy to clear them. World Bank staff expect to present the operation for clearing the arrears to the International Development Association (IDA) by the end of February 2020. 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.
The HIPC Initiative
The HIPC Initiative is a framework, created by the IMF and World Bank, in which all creditors, including multilateral creditors, provide debt relief to the world’s poorest and most heavily indebted countries, thereby reducing the constraints on economic growth and poverty reduction imposed by the debt-service burden. To date, 36 countries have reached both their Decision Points and Completion Points under the Enhanced HIPC initiative.