Debt relief or not: Somalia’s choices

MOGADISHU - Somalia’s officials seem to be nearing their ultimate goal of securing a debt relief after the International Monetary Fund said it supports the call.

But the celebrations may be put on ice for some time until at least Mogadishu satisfies all the conditions needed for debt forgiveness.

This past week, Somalia’s Finance Minister, Abdirahman Beileh said he was hopeful the credit lines could reopen starting February next year, allowing the country to start spending on key infrastructure projects.

“We are grateful to all our valuable partners for their continued support in our debt relief process. The Somali government is committed to completing the reforms for long term prosperity,” he said in a Tweet, referring to an endorsement of Somalia’s bid by IMF Managing Director Kristalina Georgieva

Somalia, affected by civil war and al-Shabaab menace for most of the last three decades has only recently started reestablishing itself. A UN-backed transitional government paved way for a federal government in 2012, mostly supported by the African Union Mission in Somalia (Amisom), a combat force established by the African Union in 2007.

Ahead of its key transition timelines where it is supposed to hold a one-person-one-vote by 2021, Somalia has had to deal with its past first. For example, most of the estimated $4.7 billion debt was accumulated before 1991, during the reign of Mohammed Siad Barre. Yet this debt is also equivalent to the country’s current GDP, according to the World Bank.

A chain of its creditors also indicates the kind of relationship it had in the past. For example, Somalia doesn’t owe China, Africa’s biggest lender at the moment.

But it owes $2 million to an entity called the Nigerian Trust Fund, a revolving kitty set up by the Nigerian government and the African Development Bank in the 1970s. Though both the Nigerian and AFDB Group routinely extend its mandate, most countries are now directly owing to the Bank, rather than affiliates.

Overall, those past debts mean Mogadishu owes about $1.6 billion to multilateral lenders like the AfDB, World Bank or IMF, consisting of a third of the debt.

It also owes $617 million to countries who were powerful in the past, but are now shells of war. These include Libya ($5 million) and Iraq ($58 million). Other creditors include Saudi Arabia, Kuwait, Bulgaria, Russia, Denmark France, Italy, Norway, Spain, the US, UK, Japan, and the Netherlands.

Ideally, Somalia’s absence from the global scene and coupled with an unregulated economic sphere meant no one could sign off loans.  Getting readmitted means clearing its past obligations, however. Debt relief means Somalia could get into concessional loans, enabling them to implement certain projects.

“Somalia needs debt relief because it will reduce the burden of paying the debt and hence the resources will be channeled towards social expenditure and other crucial sectors,” Abdimalik Abdullahi, a Somali Researcher on Somalia’s political and economic scene said.

“Debt relief is also more or less a prerequisite for Foreign Direct Investment (FDI).”

Somalia may bank on its oil stock, which according to Deputy Minister of Petroleum and Mineral Resources, Mohamud Abdikadir Hilaal recently earned the country $1.7 million in rental service fee for the 30 years from Shell/ExxonMobil.

But for a country that needs schools, hospitals, and roads, new lending sources are needed. Debt relief could also be another step to ensure a UN-imposed arms embargo is lifted, enabling Mogadishu to equip its security agencies.

To get the relief, Somalia will have to put in place auditing systems, ensure sufficient revenue management schemes and manage its inflation. This is besides providing proper proposals to manage its political stability.

Somalia, besides its security challenges, has also become the poster for climate change. Its GDP has recently slackened in what the World Bank says is continual droughts, with nearly 6 million people in constant danger of food shortage.

Yet economic activity is largely moved by success in agricultural sectors. Its domestic revenues recently increased by a quatre to $142.6 million, according to the World Bank, with donors putting in $103.6 million in 2017.

Additionally, the suggestion from both the IMF and the World Bank is that Somalia must improve its expenditure controls.

- Corruption hit an all-time high -

The Federal Member States in Somalia say they are skeptical of the ongoing debt relief efforts by the central government as it comes amid unresolved political differences in the long-chaotic. 

In the political sphere, the Mogadishu-based government and the regional states are still at loggerheads over the constitutional review process which defines the share of the natural resources, modalities of the next elections in 2020/2021.

The Somali government is keeping some donor funds offshore and none of the ministries have completed last year’s accounts, the auditor general said in a report published last week.

The report said $18 million from the European Union, Saudi Arabia, and the United Nations did not pass through the treasury’s account at the central bank. Some of the money was kept in offshore accounts with weaker controls.

For nearly three decades, Somalia has not had strong national agencies in the frontlines to root out corruption at all levels of Somalia’s federal and local institutions as the country ranks among the world’s most corrupt countries, per Transparency International.

The corruption watchdog said in its latest report, corruption flourishes in Somalia, where democratic foundations are weak and people in power use it to their advantage.

Also, the financial experts warned unless confronted, corruption will have a heavy impact on Somalia’s society and undermine
the country’s state-building efforts, democracy, and rule of law.

- Key concern -

In the security sector: Somalia is currently facing security challenges as the Al-Qaeda-linked Al-Shabaab group still holds swathes of territory and continues to stage deadly attacks in the capital and most parts of the country, targeting key government installations and military bases.

The radical Islamist group al Shabaab emerged as a major security challenge when the militants gained control of large parts of southern and central Somalia since late 2009.

The African Union troops are set to leave the country in the coming few years and hand over the security responsibility to the national army, which is still divided into clan lines there is no cooperation between the central government and Federal states in the security field.

GAROWE ONLINE/EDITORIAL