Somalia Secures $1.1 Billion Debt Relief from U.S., Marking Major Step Toward Economic Recovery

 

Somalia has announced a landmark agreement with the United States that will cancel over $1.1 billion of its outstanding debt, a figure that represents roughly a quarter of the country's remaining financial obligations. This move is the latest in a series of debt relief agreements aimed at alleviating the nation’s decades-old financial burdens.

The bulk of Somalia’s debt originated during the era of Siad Barre's regime, whose fall in the early 1990s led to decades of civil war and economic collapse. President Hassan Sheikh Mohamud described the relief as lifting a “suffocating” burden, as the country struggled to keep up with interest payments that accumulated during its prolonged period of instability. The debt cancellation, formalized in an agreement between the U.S. and Somalia on Tuesday, amounts to $1.14 billion.

Expressing gratitude, Somalia’s Finance Minister Bihi Egeh posted on X, thanking the "U.S. government and people for their unwavering support of our economic reforms and growth." Mohamed Shire, the Director General of Somalia’s Ministry of Planning, called the agreement a “historic step” for Somalia’s recovery journey. Mohamed Dubo, head of the Somali government’s investment promotion office, shared his optimism on X, stating: "Somalia can now face its future UNCHAINED."

The United States, previously Somalia's largest individual lender, held around one-fifth of Somalia's debt by 2018, according to IMF data. Speaking from the U.S. embassy in Mogadishu, Ambassador Richard Riley praised the agreement as a “great day” for both nations. He noted that the cancellation was the largest single component of Somalia’s $4.5 billion debt, forgiven under the Heavily Indebted Poor Countries (HIPC) Initiative, a program spearheaded by the IMF and World Bank to help the world’s poorest nations achieve sustainable debt levels.

Since completing the HIPC program in December 2023, Somalia has now secured $4.5 billion in total debt relief, restoring its eligibility for international financial support and partnerships after years of isolation.

In March, the Paris Club, a coalition of wealthy creditor nations, announced a 99% waiver on the $2 billion Somalia owed, further reducing its debt burden from 64% of GDP in 2018 to less than 6% by the close of 2023. In June, another agreement with the OPEC Fund for International Development canceled $36 million of Somalia’s debt, facilitated by a bridging loan from Saudi Arabia. The OPEC Fund arrangement is expected to open new financing channels for Somalia's national development.

While these debt relief agreements mark significant progress, financial expert Harry Verhoeven cautioned that private investors may still approach Somalia with hesitation due to ongoing concerns over financial governance and political stability. Nonetheless, he highlighted the agreement’s value, noting that it grants Somalia greater access to funding from international development banks, a crucial element for its long-term recovery.

With these agreements in place, Somalia now has a clearer path to rebuild its economy and strengthen its institutions after years of debt-laden constraints.