Key Questions on Somalia
updated: March 25, 2020
On March 25, 2020, the IMF and World Bank approved Somalia’s eligibility for debt relief under the Enhanced Heavily Indebted Poor Countries (HIPC) Initiative. Debt relief will help Somalia make lasting change for its people by allowing its debt to be irrevocably reduced from US$5.2 billion at end-2018 to US$557 million in net present value terms (NPV) once it reaches the HIPC Completion Point in about three years’ time.
What does the Decision Point mean and why is it important for Somalia?
(see Figure 1).
Figure 1: Somalia’s Debt
[1] The net present value tries to capture the economic value of the debt, and could be considered the price that would be paid if the debt obligation were sold in the market. In particular, the longer-maturity the debt, the lower the NPV as payments that are due many years in the future have little value today.
What happens next? What more does Somalia need to do to get the full amount of debt relief?
- Establish a further track record of good performance under an IMF program;
- Implement its Poverty Reduction Strategy for at least one year; and
- Implement the other key structural reforms agreed at Decision Point—the “floating Completion Point triggers”. These include additional efforts to ensure public resources are used effectively and to the benefit of all the Somali people, and efforts to promote stronger economic growth that will lead to more jobs.
How will the global COVID-19 pandemic affect Somalia?
Somalia has a new arrangement with the IMF. What is the purpose of that?
• On March 25, the IMF Executive Board approved a new three-year arrangements under the Extended Credit Facility (ECF) and the Extended Fund Facility (EFF) for Somalia. The new arrangement will help guide the authorities’ reform priorities as Somalia moves from the HIPC Decision Point to the Completion Point and catalyze concessional donor financing. It will support the authorities as they implement Somalia’s National Development Plan to build greater economic resilience, promote higher and more inclusive growth, and reduce poverty.Why does Somalia need debt relief?
Figure 2: Somalia’s GDP