Opinion: How Somalia’s historic debt relief achievement came about

While global attention was focused, rightly, on the existential threat of climate change at the 28th United Nations Climate Change Conference last week, a major economic milestone was reached that should not go unnoticed — and no less in a country extremely vulnerable to the changing climate. On Dec. 13, Somalia completed debt relief under the Heavily Indebted Poor Countries, or HIPC, Initiative. This collective effort, codified by the executive boards of the International Monetary Fund and World Bank, reduced Somalia’s external debt to under $700 million from around $5.3 billion in 2018, providing the country with a path to economic stability and the opportunity to begin investing in its people and their future. The Somali authorities deserve credit. Successive Somali governments over the last 10 years have built the systems and capacities and undertaken ambitious reforms. They did this all while coming out of decades of civil war, facing a global pandemic and multiple climate shocks, and battling the extremist group al-Shabab, which continues to inflict harm on the Somali people. Somalia’s determination lays the foundation for reintegration into the international financial system and provides hope for future generations of Somalis looking to improve their lives and livelihoods. The path ahead for Somalia will have many challenges, but we can say with confidence that the Somali people are well placed to address and overcome them with the same determination shown in moving forward under HIPC. A multilateral effort It is also right to recognize the multilateral effort that supported Somalia and underpins this achievement. As the 37th country to complete debt restructuring under HIPC, and the first to do so since Liberia in 2010, Somalia was able to draw on a framework created in 1996 to assist 39 low-income countries burdened by debt that hampered their economic prospects and undermined efforts to address poverty and sustainable development. Somalia accumulated much of this debt (in the form of arrears) following the outbreak of its civil war in 1991. It began working with the international community in 2016 to demonstrate a track record of reform necessary to achieve HIPC debt relief. The World Bank, IMF, and other international partners joined together to provide deep debt restructuring linked to meaningful and equally deep reform commitments. Somalia’s HIPC success also underscores the close engagement and commitment of bilateral partners. Bilateral creditors are making major debt relief contributions to match Somalia’s reform progress, with most of these creditors, including the United States, providing full debt forgiveness. Debt relief is a win for international cooperation In today’s new debt landscape, debt-burdened countries are seeking to work with a more diverse creditor composition under the Common Framework for Debt Treatments beyond the DSSI, a 2021 initiative endorsed by the Group of 20 leading economies to restore debt sustainability and address economic stabilization and growth. The U.S. remains committed to improving this process so it can provide more reliable and timely debt relief for those countries willing to also implement deep reforms. HIPC debt relief is also a win for international cooperation. It shows that when we move forward together, with commitments and support linked to reforms, all can benefit. With clear rules and a common understanding, we can leverage goodwill to deliver transformational changes that translate into benefits that can change people’s lives. The international financial institutions — the IMF and World Bank and the regional multilateral development banks — are at the center of this system and have helped countries like Somalia on their paths to prosperity. IFIs will continue to play this important role as low-income countries grapple with new challenges and shocks to the global economy. These institutions will need to be equipped to tackle global challenges going forward. At the IMF, this includes an important agreement on the 16th quota review to increase quota shares for fund members, as well as putting the IMF’s Poverty Reduction and Growth Trust on solid financial footing so that the IMF can promote macroeconomic stability and sound reforms in low-income countries. At the MDBs, the U.S. has joined with other shareholders to champion a robust evolution that involves a suite of reforms to make these institutions fit for purpose to address the intertwined goals of poverty reduction and sustainable growth by tackling global and regional challenges such as climate change, pandemics, and fragility that have very real impacts at the national level. This includes changes both to the operational models of the institutions and measures to improve the quality and quantity of financing. This important milestone for Somalia demonstrates what is possible, even in the most difficult contexts, for countries that consistently commit to reform and staunchly follow through on a vision for their own future. It also demonstrates that the international financial system can be a strong and reliable partner to such countries. Somalia is a live case study demonstrating that together we can deliver real change and opportunities for transformational development.