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Deeq A.

DEBT RELIEF FOR SOMALIA: OPPORTUNITIES AND RISKS

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Deeq A.   

Somalia can benefit from debt relief thanks to the effort of successive Somali Federal Governments, and countries that helped Somalia with a bridging loan and funds to clear arrears with the African Development Bank. Debt relief will constitute a remarkable economic milestone for Somalia.

Somalia ranks high in the list of countries bedevilled by corruption. A study conducted by Western Virginia University researchers concluded: “…countries with lower corruption and better rule of law complete the Heavily Indebted Poor Countries (HIPC) process faster.” What are obligations on Somalia to attain debt relief goal? According to the IMF ” If Somalia sustains its commitment to reform, it is expected to reach the HIPC Completion Point in three years, when its debt will be significantly further reduced to US$557 million in net present value terms (NPV).”

Successful debt relief will spare Somalia servicing debts incurred by the pre-1991 governments. Somalia received loans from both Western countries and former USSR. Unaccountable leaders can play havoc with the economy of a poor country and saddle future generations with a debt. Which brings us to ask the question: Will debt relief for Somalia predispose its leaders to borrow money and make Somalia a heavily indebted country again?

There is no guarantee that that a future Somali Federal Government will not borrow money from countries or multilateral agencies. Political recognition that the Federal Government of Somalia enjoys may come in handy when door fatigue compels foreign countries to reduce their contributions to AMISOM budget. Somalia could be forced to subsidise the peace mission through loans. This scenario will sound less absurd if one takes into account the failure of the Somali political class to wean the Horn of Africa country off dependency on AMISOM since September 2012, when a new President was elected to head a permanent government.

The other possible scenario is the possible commitment to funding white elephants or reintroduce lop-sided economic development initiatives that left more than half of Somalia in a state of underdevelopment. Debt relief might empower a less accountable Somali Federal Government to adopt statist policies in the interest of creditor countries. Without sound institutions, the debt relief for Somalia will turn out to become false dawn.

 © Puntland Post Monthly, 2020

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