Is Somalia gradually inching towards debt cancellation? – Abdulkadir Khalif


Saturday, 19th of October 2019, seems to have been a glorious day for Somalia’s efforts to gain debt relief.
In a visit to the United States of America, a high powered Somali delegation led by Prime Minister Hassan Ali Khayre, including Finance Minister Abdirahman Duale Beileh, met with donors and the bosses of the World Bank and the International Monetary Fund (IMF).

The occasion was the Autumn Meeting in Washington DC in 2019, which offered PM Khayre and his companions the opportunity to meet with officials from crucial partners including, The Netherlands, Denmark, Italy, and Norway. Others are from the UK, Qatar, Sweden, Germany, France, and the US Treasury.

The IMF’s new managing director, Kristalina Georgieva, expressed enthusiasm upon receiving the officials from the Horn of Africa nation.

“I assured the Prime Minister of the IMF’s full support for Somalia’s efforts to secure debt relief, including working with the membership of the Fund to secure the financial resources necessary to clear arrears to the IMF and cover the costs of debt relief,” Georgieva said, as quickly reported by Reuters.

Most of the folks in Somalia welcomed the positive news from Washington DC; some, however, warned the Somali government against complacency.

Omar Abdulle Hayle, a fishery expert in Mogadishu, indicated a more stern fight waiting for Somalia’s economic team. “The financial delegates may have to be skilled with ‘Kungfu kicks and Karate fists’ if they are to negotiate their way to debt cancellation,” remarked Hayle, wearing a broad smile.

International keenness towards Somalia’s financial development appears gathering momentum.

On the 2nd of October, the United Nations Assistance Mission in Somalia (UNSOM) issued a summary of the communiqué that came out of the Somalia Partners Forum (SPF) meeting held in Mogadishu on 1-2 October 2019.

“International partners recognised Somalia’s achievements and commended the leadership of the Federal Government of Somalia (FGS) for the significant progress in implementing reforms including improved public financial management and revenue generation as well as consultations on a new National Development Plan,” partly read the UNSOM summarised communiqué.

The meeting, the first of its kind set inside Somalia, offered Somali officials and more than 50 international delegates the opportunities to examine a wide range of issues and reached agreements on many of the discussed agenda items.

“Somalia and its international partners agreed on a Mutual Accountability Framework to narrow their joint focus to priority areas for action and resources to achieve key priority outcomes before December 2020,” the UNSOM summary added.

The SPF meeting participants very much hoped that the country would eventually secure debt relief, mainly via the ongoing IMF Staff Monitored Program (SMP 4).

Over the past two years, Somalia had gone through a series of SMPs, namely SMP I, SMP II, and SMP III.

The communiqué emphasized, reading, “Somalia committed to meet in full the benchmarks in its fourth IMF Staff Monitored Program (SMP IV), and international partners committed to actively support the FGS to meet the benchmarks building on the significant progress to date, and to take the necessary steps to prepare for an anticipated Heavily Indebted Poor Countries Decision Point in early 2020.”

Development scholars like John Hurley illustrated, over two years ago, the way forward for Somalia’s debt cancellation drive.

In May 2017, John Hurley published a piece on the website of the Center for Global Development (CGD), titled Somalia Debt Relief: A Longer-Term Proposition.

He authoritatively predicted that the multilayer process would take more than two years, suggesting that Somalia should borrow a leaf from the experience of the West African country Liberia’s arrear clearance/debt relief.

“While Somalia’s challenges are much more difficult, the debt relief process in Liberia successfully established the building blocks for sound economic policy and basic institution building,” wrote Hurley, cautioning that there could be bumps, if not boulders, in the road ahead.

Somalia seems to have assimilated the Liberia way suggested by Hurley way back in 2017.

Since then, at least once a month, officials of the federal government of Somalia have been holding a meeting on economic review and usually chaired by the Minister of Finance Beileh.

Periodical press statements by the minister explain that the discussions are centered on advances on reform and policy implementations supported by the International Monitory Fund (IMF) Staff –Monitored Program (SMP).

Just over two months ago, on 21st of August, the finance portfolio holder held a press conference at his office in Mogadishu, describing among others to whom Somalia owes the over $5 billion debt. “We are indebted to four groups of creditors,” said Minister Beileh.

“We owe the debt to the IFIs (International Financial Institutions, namely the World Bank, International Monetary Fund and the African Development Fund), the Paris club, the non-Paris club, and the Islamic/Arab creditors (their states and non-state financers),” he added.

The minister stressed that Somalia is indebted about $1 billion to the IFIs and $3 billion to the Paris club. The rest is a debt owed to the non-Paris group and Islamic/Arab funds.

As per government, the main efforts to achieve debt cancellation are geared towards strengthening of budget execution, public finance management (PFM), widening the state revenue base through tax collection as well as rendering preparatory work to launch new Somali currency to replace the redundant shillings notes.

The note in circulation is heavily counterfeited and used alongside US Dollars in an unregulated manner.

The Somali government has embarked on a series of SMPs in line with structural benchmarks (SBs) that are installed to ensure better economic performance.

The designed benchmarks have been adopted as instruments to tackle such anomalies like the widespread poverty, high youth unemployment, and gaps in social needs.

Over the last two years, Somalia has implemented 3 SMPs, and all meant to lay foundations in meeting the standards of the so-called Upper Credit Tranche conditionality for debt cancellation.

The government continuously tries to raise public awareness on the importance of closely working with the international financial institutions, especially with the IMF so that the Horn of Africa country reaches the Decision Point under the HIPC (highly indebted poor countries) Initiative that will lead to debt cancellation, fingers crossed.

Debt accumulated over the nearly six decades the country have been independent amounts to over US$5 billion, which is well above the country’s capacity to service the debt, let alone repaying it. Hence, the agreement with IMF through the SMPs that work via structural benchmarks (SBs) and indicative targets (ITs) are meant to focus on enhancing the reform in Public Finance Management (PFM), revenue mobilization and expenditure control.

Exchanging all Somali shillings currently in circulation with a new currency is desired by all and sundry because the former is not only hugely counterfeited, but it is hardly used in some regions like Hiran and Galgaduud in Central Somalia where people have no option but to use the US$ even for the smallest purchase.

Only three years ago, it was unthinkable to see a mother at a marketplace in Beledweyne town, 350 km north of Mogadishu, pressing mobile phone keys, paying US$0.07 for one banana, which is a sad reality today, urging reintroduction of the Somali shillings.
The IMF-encouraged SMPs are intended to assist Somalia in developing its financial sector, including the improvement of the macroeconomic performance, complemented with succinct reporting of financial data.

Economists across the globe agree that the more revenue a government gets, the better is its ability to render financial and public services. Somalia’s Minister Beileh seems to recognize as a matter of fact.

“We are slowly changing the tax evasion culture to complement the improving revenue collection from port and airport of Mogadishu as well a sales tax,” remarked the finance minister on the 4th of May this year.

Greater accountability is said to be achievable via PFM in the form of treasury authorisation and bank payments. The finance portfolio is confident that cooperation with the federal member states (FMSs) is solidly advancing, particularly in the sphere of tax and custom harmonisation and revenue sharing.

FMSs comprise of Puntland, Galmudug, Hirshabelle, Koofurgalbeed (Southwest), and Jubbaland plus Banadir region (the capital Mogadishu and surrounding areas). Somaliland is the only region in Somalia that is out of this scheme because it has been pursuing international recognition since it declared independence from the rest of Somalia in 1991.

The Somali government insists that it is on its way in meeting most, if not all, the structural benchmarks and indicative targets.

To the last Spring Meeting held between 8th and 14th of April this year in Washington DC, USA, the Somali delegation that comprised high ranking officials including Finance Minister Beileh and Planning Minister Gamal Mohamed Hassan was led by Prime Minister Hassan Ali Khayre.

During their presence in Washington DC, the delegates met with the top officials of the World Bank and the IMF including Christine Lagarde, the former managing director of the IMF.

PM Khayre had also met with Lagarde in January this year during the World Economic Summit at Davos, Switzerland, underlining the importance of debt relief for Somalia.

On 23rd of January, the former IMF managing director twitted, “I had very constructive meetings with Somali PM Hassan Ali Khayre today. Somalia’s debt relief is a priority for IMF, and every effort is being made to accelerate the process within established procedures.”

Other bilateral talks with representatives from international agencies and development partners are said to have helped Somalia advancing its cause, especially the push for debt relief and possible cancellation.

The list of the 18 benchmarks that were exposed by the Somali delegation to the meeting included all federal member states (FMSs) in reporting on the utilisation of any FGS budgetary transfer on a semi-annual basis. Progress made on the biometric registration of the Somali National Army (SNA), and civilian personnel was marked as an achievable target.

The Somali government took the task of giving details of its financial management information system (S-FMIS) that intend to provide a system with adequate trials to improve administrative accountability in processing transactions.

According to the deliberations at the Spring Meeting, cash advances, stocktaking, and recording of all payroll, goods, and services vouchers were consistent with S-FMIS.

Many other benchmarks met or tackled by the assigned institutions, including the Central Bank of Somalia (CBS) consist of Inland Revenue measures, Customs measures and fiscal federalism that is consistent with the federal system adopted by the Horn of Africa country.

As per the ministry of finance, other areas considered as drivers of the economy are local commercial banks, hawala (money transfer businesses), and mobile money operators, all needing licensing and supervision, particularly in conjunction with the central bank of Somalia.

As per reports received through the media, the Somali delegation in Washington pushed hard to convince the IFIs that all the federal and state institutions are geared to achieve all the agreed structural benchmarks and indicative targets.

On 9th of May, soon after the Somali delegation returned to Mogadishu, Minister Beileh, who chaired the monthly economic development review meeting, stated that the last Spring Meeting in Washington was a success story.

“We had a satisfactory meeting in Washington DC with all our creditors and the IFIs,” remarked the minister.

He added, “We were allowed to explain the economic situation of Somalia and our desire to achieve debt cancellation.”

Not everybody is happy though with the explanations of the Somali government.

Dr Mohamud M Uluso, a former Somalia presidential candidate in 2017, wrote critically about the way the Somali government depicts its economic performance.

“Somali officials misrepresent IMF statements and reports,” was the title of a paper sent by Dr Uluso to Geeska Africa Online in December 2018.

“(Somali officials) often citing press statements or reports of the International Monitory Fund (IMF) staff as evidence supporting their claims of integrity and good performance in public financial management and economic accomplishments,” he added.

He alleged that, among others, the officials responsible for financial and economic affairs were fully aware that their offices did not provide a comprehensive official account on-budget execution in 2017 and 2018, accumulated arrears, off-budget revenues, foreign aid shortfalls.

As recent as 7th of August, the President of Puntland State of Somalia Said Abdilahi Deni expressed reservation on Mogadishu’s approach to debt cancellation.

“We have to be careful with debt cancellation,” said President Deni during the kick-off ceremony of 4th Puntland Development Plan in Garowe town, the authority’s capital, 1000 km northeast of Mogadishu.

Deni, who happens to be a former federal planning minister, further cautioned, “A debt cancellation will pave the way to a new wave of debt. Therefore, the current drive to achieve debt relief must be carefully exercised.”

On 24th of April to 2nd of May this year, Somali government officials and IMF reached a staff-level agreement yet on another Staff-Monitored Program (the 4th SMP) with its structural benchmarks and indicative targets. The so-called SMP-IV will be covering the period May 2019 – July 2020.

The two sides met in Addis Ababa, Ethiopia, to discuss recent economic development, according to a press dispatch by Somali National News Agency (SONNA).

Ms. Allison Holland, who led the IMF Team, appreciated the Somali government’s commitment and programme implementation.

“Somalia’s economy continues to recover, supported by vigorous activity in the construction, telecommunications, and financial services sector in 2018,” stated Ms. Holland.

She added, “The FGS continued efforts to broaden the tax base and strengthen tax administration have been reflected in increased domestic revenue in 2018, which is almost 30 percent higher than in 2017.”

“Looking ahead, we encouraged the Somali authorities to sustain the reform momentum that has carried them through the satisfactory completion of three consecutive SMPs, and urged the completion of NDP9 (Somalia’s 9th National Development Plan) and continued efforts to secure the necessary financing assurances,” she concluded.

The IMF Team expressed its expectation that the SMP IV will be endorsed by the Executive Board as meeting the conditionality standard of the Upper Credit Tranche, stating that it puts Somalia more clearly on the path to debt relief under HIPC Initiative.

A more recent meeting between the Somali government officials and IMF staff was held in Addis Ababa from September 10 to 13 on the first SMP-IV review.

The high-capacity Somali delegation included Finance Minister, Mr. Abdirahman Duale Beileh; Minister of Planning, Investment and Economic Development, Mr. Gamal Mohamed Hassan; Central Bank Governor, Mr. Abdirahman Mohamed Abdullahi.

A week later, on 18th of September, Ms. Allison Holland, who again led the IMF team, once more reported positively on the progress being made by Somalia on the economic front.

“IMF staff welcomes the authorities’ ongoing commitment to reform under SMP-IV. All the structural benchmarks for the first review—that is, the reform measures critical for achieving the goals of SMP IV—have been met, and, although risks remain, progress is being made towards meeting those set for the second review,” Ms. Holland reported.

The statement praised the cooperation among the authorities in Somalia at various levels towards the achievement of debt cancellation.

“The authorities will need to maintain their commitment to the reforms outlined under SMP IV to establish the track record on policies required to reach the Decision Point (DP) under the Heavily Indebted Poor Countries (HIPC) Initiative,” she underlined.

“The authorities’ work on their 9th National Development Plan, which they intend to meet the HIPC requirement for a Poverty Reduction Strategy, is close to completion,” the team leader highlighted.

Having gone down the Liberian way indicated by Hurley, Somalia envisages that the SMP-IV will be the last, and the Horn of Africa country will reach a Decision Point by July 2020.

During the 1st week of September, Minister Beileh equated the SMP as the process an undergraduate student goes through to gain a degree. “As you are aware, a student cannot access the following academic year without completing the necessary studies of the preceding year. Thus, completing all the curriculum requirements is what enables the student to graduate. Isn’t it?” he quizzed a horde of steadily gazing reporters.

“We have embraced the series of SMPs and we have to do enough to graduate and earn our keenly sought debt cancellation,” he added, expressing an air of optimism.

The minister repeatedly stated that a debt cancellation means the government is in a position to offer better development and social services to the Somali people, mentioning security, education, health, and infrastructure building while the country will attract much needed Foreign Direct Investment.

State officials in charge of economic development in Mogadishu must be delighted to witness the new IMF Managing Director Kristalina Georgieva showing the same zeal towards the Horn of Africa country’s debt relief efforts as its predecessor, Christine Lagarde.

Abdulkadir Khalif
Nation Media Correspondent in Somalia