Somalia recently announced that the United States would cancel over $1.1 billion (approximately £860 million) of its outstanding debt, a sum that constitutes about a quarter of the nation’s remaining debt burden.
This announcement is part of a series of agreements in which Somalia’s creditors have pledged to forgive its debt. Much of Somalia’s debt was accumulated during the dictatorship of Siad Barre, whose government collapsed in the early 1990s, plunging the country into a destructive 30-year civil conflict.
President Hassan Sheikh Mohamud described the relief as a way to alleviate the “unsustainable debt” that had weighed on the country for years, exacerbated by unpaid interest during the prolonged state collapse. On Tuesday, the US and Somalia signed an agreement formalizing the cancellation of $1.14 billion in debt.
Somalia’s finance minister, Bihi Egeh, expressed gratitude in a social media post, thanking the US government and its citizens for supporting Somalia’s economic reforms and growth. Mohamed Shire, a director in Somalia’s Ministry of Planning, celebrated the agreement as “historic” and a positive milestone for Somalia’s recovery.
Mohamed Dubo, head of Somalia’s investment promotion office, posted that Somalia could now face its future “unchained.”
The US, which was Somalia’s largest bilateral lender, had held about a fifth of Somalia’s total debt in 2018 before debt-relief efforts began, according to the International Monetary Fund (IMF). During the embassy announcement, US Ambassador Richard Riley called it a “great day” for both nations.
The US debt cancellation is part of the $4.5 billion owed by Somalia to various countries, forgiven through the Heavily Indebted Poor Countries (HIPC) Initiative, a program led by the IMF and the World Bank to help the poorest nations escape unsustainable debt.
In December 2023, after completing the HIPC program, Somalia became eligible for $4.5 billion in debt relief and reestablished its ties with international financial institutions after years of exclusion.
Ambassador Riley noted that Somalia achieved this milestone through new laws, operational changes, and increased financial accountability, supported by the US and its partners.
Earlier in March, the Paris Club, a group of wealthy creditor nations, announced that it would waive 99% of the $2 billion owed by Somalia, significantly reducing its debt from 64% of GDP in 2018 to less than 6% by the end of 2023, according to the World Bank. In June, Somalia cleared an additional $36 million owed to the Opec Fund for International Development, with a bridging loan from Saudi Arabia, which will now allow Somalia to access new Opec funding for its national development.
Harry Verhoeven, an expert in the region’s political economy, highlighted the significance of this debt relief, noting that it enables Somalia to access more public financing from development banks, although private lenders might still be wary due to concerns over Somalia’s financial governance and political instability.
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