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Somalia moves closer to debt relief amidst political turmoil, financial reforms


Saturday May 20, 2023

 

 

Mogadishu (HOL) - The International Monetary Fund (IMF) has bolstered Somalia's prospects for debt relief with an immediate disbursement of $9.4 million. On May 17, 2023, the IMF Executive Board completed its fifth review under the Extended Credit Facility (ECF) for Somalia, bringing the debt-laden nation one step closer to financial stability.

IMF Deputy Managing Director, Mr. Tao Zhang stated, "Somalia's reform implementation under the ECF-supported program has been satisfactory despite an exceedingly challenging environment." This sentiment underlines the IMF's faith in Somalia's commitment to economic restructuring as the nation sets its sights on achieving the Heavily Indebted Poor Countries (HIPC) Completion Point by late 2023.

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The disbursement follows an earlier agreement in March 2023, where the IMF indicated that Somalia would qualify for complete debt relief if it maintained its current reform trajectory. 

However, the path to full debt relief has been fraught with challenges. Renewed political disputes between the federal government and Puntland, a semi-autonomous region, along with the persistent hurdles to effective revenue collection, have cast a shadow over Somalia's debt relief hopes.

Additionally, the economy is under duress, with Somalia's GDP growth for 2023 downgraded to a mere 2.8 percent, primarily due to drought conditions and a drop in remittance inflows. On the brighter side, "Inflation is projected to decline to 4.2 percent as international commodity prices recede," Zhang added. However, the looming threat of a worsening food crisis and other security, political, and policy challenges persist.

The Somali government must advance fiscal and institutional reforms to overcome these obstacles. Key areas include strengthening domestic revenue mobilization, improving public financial management, and enhancing anti-money laundering and counter-financing of terrorism (AML/CFT) measures. The international community's continued economic and capacity-building support is crucial to the success of these reforms.

Somalia's progress towards the HIPC Completion Point hinges on its ability to balance ongoing reform efforts with addressing immediate humanitarian crises. As Zhang emphasized, "The success of the reform agenda will also require continued financial support and capacity development assistance from the international community."



 





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