Key Questions on Somalia

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HIPC Completion Point: significance and outcomes

• 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.
• Updated: December 13, 2023 — On December 13, 2023, the Executive Boards of the IMF and the World Bank's International Development Association (IDA) approved Somalia’s Completion Point under the enhanced HIPC Initiative.
• At the HIPC Completion Point:
  • External public debt was reduced from US$5.3 billion at end-2018 to US$0.6 billion at end-2023.
  • At end-2018, debt equaled 64 percent of GDP; at end-2023, debt is less than 6 percent of GDP.
• Earlier description of the trajectory (as approved in 2020) indicated debt reduction from US$5.2 billion at end-2018 to US$557 million in net present value terms (NPV) once reaching the HIPC Completion Point in about three years’ time.
• Achievement of the Completion Point recognizes sustained reform implementation despite shocks including the Covid-19 pandemic, a desert locust infestation, two years of severe drought, and external shocks to food supply and prices.
• The Completion Point enables access to new external financing to accelerate growth, improve social conditions, and reduce poverty.

International creditor participation and debt service savings

• The HIPC Completion Point unlocks total debt service savings of US$4.5 billion for Somalia.
• Breakdown of multilateral debt service relief amounts:
  • IMF: US$343.2 million
  • IDA: US$448.5 million
  • African Development Fund (ADF): US$131.0 million
  • Other multilateral creditors: US$573.1 million
• Debt service savings from bilateral and commercial creditors amount to US$3 billion.
• Bilateral creditors include members of the Paris Club and creditors from the Arab Coordination Group.
• More than 100 countries contributed financial resources used to clear Somalia’s debt to the IMF.

Expected economic and social benefits

• Debt relief at HIPC Completion Point is intended to:
  • Fully normalize Somalia’s relationships with key international partners.
  • Secure enhanced access to vital financial resources.
  • Reduce debt servicing costs, enabling reallocation of resources to education, healthcare, infrastructure, and other areas that improve quality of life.
• Debt relief is framed as critical for fostering economic growth and poverty reduction.

Purpose and pillars of Somalia’s new IMF arrangement

• On December 13, 2024, the IMF Executive Board discussed a new three-year arrangement under the Extended Credit Facility (ECF) for Somalia.
• The new arrangement and related capacity development support aim to:
  • Further strengthen key economic institutions.
  • Promote economic and social development.
  • Protect macroeconomic stability.
  • Build resilience to climate and other shocks.
• Key pillars of the program:

1. Maintain fiscal sustainability to ensure continued access to external financing. 2. Increase domestic revenues and strengthen public financial management to expand government capacity for expenses, social services, and high quality development projects. 3. Promote financial deepening to attract and channel domestic savings to economic development. 4. Improve the business environment and governance to promote private investment. 5. Enhance statistics to better inform economic policies.

Poverty, vulnerabilities, and reform imperatives

• Poverty remains widespread: 54 percent of the population live on less than US$ 2 per day.
• Somalia faces significant economic, social, security, and climate risks; growth is currently insufficient to reduce poverty, address social needs, and generate adequate employment opportunities for young people.
• Somalia is highly vulnerable to climate shocks that hurt growth and hinder poverty reduction.

Reforms implemented to reach Completion Point

• Somalia completed a 45-month IMF-supported program under the ECF, preceded by four consecutive staff monitored programs since 2016.
• The IMF provided sustained capacity development support, sponsored by the Somalia Country Fund.
• Key policy efforts included:
  • Maintaining macroeconomic stability, evidenced by satisfactory performance under the ECF and a solid track record of reform implementation.
  • Significantly increasing pro-poor expenditures and implementing the Nineth National Development Plan.
  • Increasing government revenues to finance critical needs.
  • Strengthening public financial management to improve expenditure management, transparency, and accountability.
  • Improving financial sector regulation and supervision and enhancing the capacity of the Central Bank of Somalia to promote financial stability and financial inclusion.
  • Advancing structural reforms including improvements on governance, social sectors, and statistics.

Measures to sustain stability post-Completion Point

• Authorities commit to a prudent fiscal framework that balances higher development expenditure with protecting fiscal sustainability, acknowledging capacity constraints.
• Increasing domestic revenues is a key pillar of the authorities’ reform strategy.
• External financing is expected to be based solely on grants and concessional loans to preserve debt sustainability.
• Continued support from international partners—both capacity development and concessional financing—is deemed essential for successful implementation of the reform strategy post-HIPC.
• The IMF will continue to support Somali authorities with policy advice, capacity development support, and financing under the new ECF arrangement.

References

• Somalia and the IMF
• Press Release
• Somalia Country Fund
• Report
• Podcast: Somalia's Recovery and the Power of a Song
• Pivotal Moments: Effective Engagement in Fragile States