On Tuesday 31st of March 2020, the Paris Club creditors agreed to restructure Somalia’s debt, including an immediate cancellation of $1.4 billion owed by the impoverished African country. This comes a few days after the country cleared loan arrears owed to the African Development Bank Group (AFDB) and weeks after it settled its debt with the World Bank.
In a statement to Reuters news agency, Abdirahman Beileh, Somalia’s Finance Minister said, “we had very productive discussions with the Paris Club and we welcome their support in relieving Somalia of a substantial amount of its debt to them.”
While the new agreement cancels about 67 percent of what Somalia owes the Paris club Creditors, it is also expected to open the way for new sources of financing for the country. The Finance Minister believes the move is a progressive step for his country, which is also fighting the coronavirus outbreak and impacts of a recent desert locust invasion that has threatened food security.
Somalia has suffered decades of internal conflict, recent desert locust invasion and the novel coronavirus pandemic. However, the country’s economy is not only driven by good economic reforms but also a vibrant and resilient private sector which has great potentials for investment and growth.
Financial services, trade, telecommunications, transportation and construction are major key players in its private sector and diaspora remittances and investments are some of the catalysts for the growth of the sector.
The private sector provides job opportunities, facilitates trade, contributes to economic recovery and is an important revenue generator for the country.
But research shows that the private sector has not made positive expansions due to the absence of improved business regulations, anti competition factor, lack of enhanced trade facilitation and transparency, and a poor security risks management.
Somalia’s commitment to its economic reforms and its vibrant private sector may account for why the country is gaining global recognition and debt reliefs from international financial institutions.
Recently, the Multilateral Investment Guarantee Agency (MIGA), a member of the World Bank Group, announced that the federal government of Somalia has become the 182nd member of the Agency, due to the normalization of its financial relationship with the World Bank. This affords the Horn of Africa country with new opportunities to access foreign direct investment while fostering economic growth in the coming years.