Debt relief clears Somalia’s pathway into new credit, trade to reverse 30-year slump
Sunday April 14 2024
Somalia’s President Hassan Sheikh Mohamud. PHOTO | POOL
Somalia is banking on new opportunities coming out of recent debt relief to seek new credit lines and open up for trade.
And in spite of security challenges and ongoing state rebuilding, Somalia’s Ambassador to Kenya Jabril Ibrahim Abdulle says Somalia is yearning to play a big role in region and international stage.
“Of course, people sometimes question if Somalia is also bringing a security challenge to the table. But I think things are getting better,” he told our sister publication, the Sunday Nation, in an interview.
“Last year, we were the only East African country that had zero debt after all our debts were forgiven by the World Bank and IMF. It gave us a fresh start and opens a huge market for East Africa.”
In December, Somalia reached an agreement to cancel $4.5 billion of debt with international lenders. That, the diplomat says, gave it new opportunity to attract investors as well as be eligible to borrow more from lenders. So far, Mogadishu has been cautious of simply piling new debt and officials have said they will prioritise opening up and rebuilding state institutions instead.
Last week, Somalia signed a financial agreement with the International Fund for Agricultural Development (IFAD) which will see Mogadishu receive up to $31.22 million for support programmes related to food security in rural areas.
Read: Somalia taps $31m Ifad funding for rural food programmes
The money is to be channelled under the Rural Livelihood Resilience Programme, aimed at improving food security and resilience in rural areas.
The funding will the first direct investment by IFAD in Somalia since Mogadishu’s external debt pile was cleared.
A dispatch released after the deal said the money will go to programmes that directly benefit rural folk to help them reduce poverty, increase food security, improve nutrition and strengthen their resilience.
Agriculture and Irrigation Minister Mohamed Abdi Hayir and IFAD President Alvaro Lario highlighted the programme’s importance, stating, “Upscaling our investment in Somalia is very important in this moment of increasing climate change to make sure that the poorest and the most vulnerable in rural areas are not left behind.”
IFAD is an international financial institution and specialised United Nations agency based in Rome.
“The programme is of vital importance for Somalia and sets to transform rural livelihoods through climate resilient agriculture,” said Somali Minister for Finance Bihi Egeh.
“Thanks to generous contributions from Germany, Belgium, Italy and Sweden, Somalia paid off its debt to IFAD,” a statement released by IFAD explained.
It added that the debt prevented Somalia from receiving highly concessional loans and grants from IFAD since 1991, at the same time as civil war devastated the country.
Read: Somalia secures $2bn debt relief from Paris Club
Last month, on a broader economic view, Somalia indicated domestic revenue projected healthy increase.
Following the debt relief approved by the international financial institutions, World Bank and IMF, just before end of last year, Somali government reported an increase in the domestic revenue.
Though the Horn of Africa country is striving to strengthen its finances, the Finance Ministry said last week it projects increased domestic revenue to rise and economic growth to rise by 3.7 percent in 2024.
The Federal Government recently reported 25 percent increase in domestic revenue, amounting to $329.5 million compared with the envisaged $283.3.
A Finance ministry recent report indicated that significant revenue is attained from points of entry of goods such the port and airport of Mogadishu. The rest is collected from inland sources.
It indicated that 53 percent derive from revenue collection while the rest, 47 percent originate from Customs.
The projection for this year’s revenue is $345 million, as the revenue director indicated that government income has been steadily increasing from 2013.
The increase resulted from the introduction of a series of reforms that improved financial policy, Mr Egeh said.
“Enhanced public financial management and capacity in the extraction of revenues and introduction of automation and digitalisation for revenue did the job,” he told a press briefing in Mogadishu last week after numbers were published. Domestic revenues rose by 25 percent last year.
Read: Somalia: We are ready to do business with East Africans
Despite the finance portfolio’s optimism, it expects that global problems affect the country both directly and indirectly. Abdulle says Somalia sees good relations with neighbours like Kenya as an important avenue to solve its problems. Later this month, Mogadishu is expected to host an investment forum facilitated by the Nation Media Group, bringing investors and policy makers to learn about opportunities in Somalia.
“Somalia is country of origin of entrepreneurs. It has very influential people who are very good at business. And I think if given opportunity, they will be able to deliver economically in various levels.”
Since joining the East African Community in December, Somalia says it has already began working on improving its business environment. But the biggest challenge, the Somali diplomat admitted, is the war on Al-Shabaab.
“Al-Shabaab is a threat to Somalia but also a threat to global security. That is why we are using every tool available to fight them as we move into East Africa. It is not just about Somalia; it is also about defending East Africa as a bloc,” he said.
“Secondly, we are introducing legislative changes that allow us to immerse into the East African economy, for example laws on investments are now improved, protection of the international investments. So, all legal issues are being addressed by the two houses of Parliament. We are also opening the Somali airspace. We are trying to create an environment where Somalis and east Africans can come and do business in Somalia.”
With the longest coastline in mainland Africa, a stable Somalia, he argued, could provide useful trading routes for the bloc.
In general, Somali officials express optimism that domestic revenue will help the country meet the salaries of its personnel, international financial experts think otherwise, part of a longterm plan to strengthen institutions and governance.