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The United States has taken a historic step to support Somalia’s economic recovery by forgiving $1.1 billion of its debt. This relief is part of an international initiative aimed at alleviating Somalia’s debt crisis, which has long hindered its growth and development.

Addressing Decades-Old Debt

Somalia’s debt crisis dates back to the military regime of Siad Barre, which collapsed in the early 1990s, plunging the nation into years of civil war and economic decline. President Hassan Sheikh Mohamud described the debt as a “huge weight” exacerbated by decades of political instability.

The debt cancellation agreement was formally signed in Mogadishu by Finance Minister Bihi Egeh and U.S. Ambassador Richard Riley. Minister Egeh expressed deep gratitude, calling the U.S. decision a “historic” move that will significantly aid Somalia’s recovery efforts.

Ambassador Riley emphasized the U.S.’s long-standing partnership with Somalia and acknowledged the country’s progress in implementing economic reforms. He called the agreement a “great day” for both nations and highlighted the U.S.’s position as Somalia’s largest bilateral creditor.

International Debt Relief Efforts

The debt forgiveness aligns with the Heavily Indebted Poor Countries (HIPC) Initiative, a program led by the IMF and World Bank to assist the world’s poorest nations. Somalia completed the HIPC program in December 2023, unlocking access to $4.5 billion in total debt relief.

In addition to the U.S., other creditors have also forgiven significant portions of Somalia’s debt:

• The Paris Club erased 99% of the $2 billion Somalia owed to its members in March 2023.
• The OPEC Fund for International Development forgave $36 million in June, aided by a bridging loan from Saudi Arabia.

These measures have dramatically reduced Somalia’s debt-to-GDP ratio from 64% in 2018 to under 6% by the end of 2023, according to the World Bank.

Opportunities and Challenges Ahead

Debt forgiveness provides Somalia with new opportunities to focus on national development. However, challenges remain. Private creditors may still view Somalia as a high-risk borrower due to ongoing concerns about political stability and governance.

Harry Verhoeven, an expert on the Horn of Africa’s political economy, called the debt relief “meaningful” but cautioned that Somalia must continue demonstrating financial accountability to secure additional financing.

A Path Toward Prosperity

With its debt burden significantly reduced, Somalia now has a clearer path toward economic growth and stability. Leaders hope this financial reset will enable the country to build a more prosperous future, free from the constraints of its past debt obligations.

This milestone marks a turning point for Somalia, highlighting the potential of international collaboration in addressing economic crises and fostering recovery in vulnerable nations.