The Paris Club of Creditors have reached an agreement with the government of Somalia that will result in the cancellation of up to $2 billion of the country’s debt- approximately 99% of the debt owed by the country to the group.
This was disclosed in a statement from the group yesterday where it stated it will forgive the country’s nominal debt of $1.2 billion under the Enhanced HIPC Initiative framework.
The move comes following Somalia’s completion of the Enhanced Heavily Indebted Poor Countries (Enhanced HIPC) Initiative of the IMF where the country was exiled from the international financial system for about 30 years.
- What the club is saying is, “To contribute to restoring the debt sustainability of the Federal Republic of Somalia, Paris Club creditors committed to cancel USD 1.2 billion in nominal terms under the Enhanced HIPC Initiative framework. Creditors welcomed and supported the commitment of the Federal Republic of Somalia to seek treatment at least as favourable from all its other official bilateral and external commercial creditors.”
- “In addition, Paris Club creditors confirmed their willingness to grant additional debt cancellation on a voluntary and bilateral basis for an amount of USD 815 million.”
- “The Paris Club consensus and the expected additional bilateral efforts would result in a reduction of more than USD 2.0 billion, representing 99% of the debt of the Federal Republic of Somalia owed to Paris Club members as of January 2023.”
Furthermore, the club welcomed Somalia’s commitment to poverty eradication, education and health reforms to create a foundation for sustainable economic growth.
What you should know
The Heavily Indebted Poor Countries (HIPC) initiative was launched in 1996 and during that period has cancelled debt to the tune of $120 billion for 36 out of 39 qualified countries. Somalia is the 37th country to benefit from the initiative.
The $2.0 debt cancellation for Somalia represents over 50% of the country’s public external debt of $3.8 billion. The reorganisation of Somalia’s debt was facilitated by representatives from Belgium, Denmark, France, Germany, Italy, Japan, the Netherlands, Norway, the Russian Federation, Spain, the United Kingdom and the United States of America with the European Commission, AfDB, and OECD as observers.