Washington, DC
The International Monetary Fund (IMF) and the World Bank’s International
Development Association have determined that Somalia has taken the
necessary steps to begin receiving debt relief under the enhanced Heavily
Indebted Poor Countries (HIPC) Initiative. Somalia is the 37th
country to reach this milestone, known as the HIPC Decision Point.

Debt relief will help Somalia make lasting change for its people by
allowing its debt to be irrevocably reduced from US$5.2 billion at end-2018
to US$557 million in net present value terms (NPV) once it reaches the HIPC
Completion Point in about three years’ time. As Somalia continues on its
path towards stability and development after 30 years outside the
international financial system, the immediate normalization of its
relations with the international community will re-open access to critical
additional financial resources to strengthen the economy, help improve
social conditions, raise millions out of poverty, and generate sustainable
employment for Somalis.

“I would like to congratulate the Somali government and people for their
intense efforts over the past years leading to this momentous event,” said Kristalina Georgieva, IMF Managing Director. “Successful
reform efforts have laid the foundation for inclusive economic growth and
for addressing the needs of the country’s most vulnerable people. Work must
continue to sustain and expand the implementation of these reforms as
Somalia starts a new chapter of its history. I am confident a more
resilient and prosperous future lies ahead for the people of Somalia.”

“We welcome Somalia’s efforts to restore stability, engage with creditors,
and adopt a poverty reduction strategy,” said World Bank Group President David Malpass. “Resumption of
regular financing to Somalia is an important landmark, and we look forward
to further economic and social progress.”

“The Government and People of Somalia are very pleased by the IMF’s and
World Bank Group’s decision which allows Somalia to fully re-engage with
International Financial Institutions. This decision is an important
milestone which presents ample opportunities for Somalia as it relentlessly
pursues its ongoing reform processes as well as its recovery and
development agenda,” said

Hassan Ali Khayre, Prime Minister, Federal Government of Somalia

. “The journey leading to this decision required hard work, dedication and
partnership. The FGS expresses its appreciation to the IMF, World Bank
Group and partners for their unwavering support and to the Somali people
for their patience and resilience in this journey.”

Somalia has committed to maintaining macroeconomic stability; implementing
a poverty reduction strategy; and putting in place a set of reforms focused
on fiscal stability, improving governance and debt management,
strengthening social conditions, and supporting inclusive growth in order
to reach the HIPC Completion Point. The World Bank and IMF will continue
working together to provide the technical assistance and policy guidance
the authorities need to achieve these goals, including in the context of
the new, three-year IMF financial arrangement.

In addition, the World Bank is considering a

range of new IDA investments

with a focus on immediate relief for communities impacted by flooding, the
locust invasion as well as preparing for the fast-moving threat of
COVID-19. The leadership of the World Bank Group and the International
Monetary Fund expressed thanks to their member countries of all regions and
income levels, in particular Italy, Norway, Qatar, and the United Kingdom,
together with the EU, whose interventions catalyzed support and provided
the necessary financial resources to help Somalia reach the Decision Point.

Details of the Debt Relief Operation

· At the start of the HIPC process, Somalia’s public- and publicly
guaranteed external debt was estimated at US$5.2 billion in NPV terms.
Application of traditional debt relief mechanisms reduces this debt to
US$3.7 billion.

· Additional debt relief under the enhanced HIPC Initiative is estimated at
US$2.1 billion in NPV terms. Of this amount, US$843 and US$1,225 million is
projected to be provided by official multilateral and bilateral creditors,
respectively.

· Paris Club creditors are expected to make a decision on debt relief by
the end of March 2020. The largest Paris Club creditors are the United
States, Russia, Italy, and France. The IMF Executive Board has approved
interim debt relief on debt service falling due to the IMF in the period
between the HIPC Decision and Completion Points. At the HIPC Completion
Point, Somalia’s current debt due to the IMF will be paid with the proceeds
of financial contributions that have been received from over 100 IMF
members, including many low-income countries.

· MDRI debt relief from IDA and the African Development Bank would cancel
all remaining claims at the Completion Point.

· Together, Somalia’s external debt burden is expected to fall from about
US$5.2 billion (110.7 percent of GDP) in NPV terms as of end-2018 to US$557
million (9 percent of GDP) once the Completion Point is reached.

IMF and World Bank Arrears Clearance Operations

· Arrears to

IDA were cleared

on March 5, 2020 through bridge financing provided by the government of
Norway, reimbursed with the proceeds of a Development Policy Grant.

· Arrears to the IMF were cleared on March 25 with the assistance of bridge
financing from the government of Italy, which the authorities have
reimbursed using the front-loaded access under the new IMF financial
arrangement.

· Arrears to the

African Development Bank

were cleared on March 5, 2020 through bridge financing provided by the
government of the United Kingdom and a contribution from the EU. The bridge
loan from the UK was reimbursed by the proceeds of a Policy Based Operation
Grant.

The HIPC Initiative

In 1996, the World Bank
and IMF
launched the HIPC Initiative to create a framework in which all creditors,
including multilateral creditors, can provide debt relief to the world’s
poorest and most heavily indebted countries to ensure debt sustainability,
and thereby reduce the constraints on economic growth and poverty reduction
imposed by the unsustainable debt-service burdens in these countries. To
date, 37 HIPC countries, including Somalia, have reached their decision
points, of which 36 have reached the completion point.

The MDRI

Created in 2005, the aim of the Multilateral Debt Relief Initiative (MDRI) is to reduce further the debt of eligible low-income countries and provide additional resources to help them reach their development objectives. Under the MDRI, three multilateral institutions – the World Bank’s IDA, the IMF and the African Development Fund– provide 100 percent debt relief on eligible debts to qualifying countries, at the time they reach the HIPC Initiative Completion Point.

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