US Writes Off More Than $1B Debt Owed by Somalia
On 5 October 2024, US and Somalia announced that they have reached a financial agreement whereby Washington will write off USD1 billion in debt owed by Somalia. The announcement came after the parliamentary session which approved a USD 1.36 national budget, representing a 25% increase over the previous budget.
Somalia is among the Least Developed Countries (LDC): 70% of its population of 19 million live on less than USD 2 per day. On top of having to fight poverty, the country has been enduring decades of unrest and frequent disasters due to #ClimateChange.
The economy was in such a dismal state that the country became internationally infamous with Somali Pirates which were impacting #MaritimeSecurity around the Horn of Africa. The bandits on high seas have plied the Indian Ocean and stoked fear on ship crews across these busy waterways leading to the Suez Canal chokepoint.
The agreement was signed by Somalia’s Finance Minister Bihi Egeh and the US Ambassador to Mogasidhu. On this ‘great day’, Ambassador Riley was quite radiant to be able to cancel the USD1.14 billion debt owed by Somalia to the US.
Under the Heavily Indebted Poor Countries (#HIPC) initiative, the #WB and #IMF have already forgiven Somalia for a debt load of USD 4.5 billion in December 2023. In return, Somalia has agreed to undertake reforms to improve accountability and sustainability.
In March 2024, the #ParisClub which is a grouping of the world’s largest creditors announced to waive 99% of Somalia’s USD 2 billion debt owed to its members. Saudi Arabia has also stepped in with fresh financing.
In addition US will extend a new financial envelope of USD 1.2 billion to promote socio-economic development and national security .The external debt burden of Somalia was nearly 70% of GDP and practically pinned the economy down which experienced great difficulties to service the debt with a low economic growth.
Being a coastal state in the Horn of Africa, Somalia is the guard to the entrance to the the Bab Al Mandab Strait and the Gulf of Aden which leads to the Suez Canal. Western countries fear that the country might fall in the hands of factions hostile to its interests.