Paris Club has announced the cancellation of 99% of Somalia’s debt after enduring three decades of conflict. The announcement follows efforts by Somalia’s finance ministry officials, engaging in negotiations facilitated by senior officials from the French Treasury.

According to the Paris Club statement, major creditor nations, including the US, UK, Russia, Norway, and Japan, have collectively agreed to waive a staggering US$2 billion of Somalia’s debt, effective January 2023. This move has been met with widespread optimism both domestically and internationally, with Somali Finance Minister Bihi Eged expressing on social media platform X (formerly Twitter) that the full debt relief would unlock crucial fiscal space, enabling the government to allocate resources towards essential public services.

Somalia’s Information Minister, Daud Aweis emphasised the agreement as a significant milestone in Somalia’s financial recovery journey. The sentiment was further supported by Kristalina Georgieva, Managing Director of the International Monetary Fund (IMF), who hailed the breakthrough as a “major stride towards economic development and poverty reduction” for Somalia.

British ambassador to Somalia, Mike Nithavrianakis, reaffirmed the UK’s commitment to full debt relief for Somalia, acknowledging the UK’s role as one of Somalia’s lenders. The Paris Club outlined that a portion of Somalia’s debt would be waived through voluntary and bilateral agreements between individual creditor countries and Somalia, while the remaining debt would be addressed under the Heavily Indebted Poor Countries Initiative (HIPC), a programme aimed at assisting nations burdened by unsustainable debt levels.

Somalia qualified for debt cancellation under the HIPC Initiative in December, becoming eligible for up to $4.5 billion of debt relief. This marked the beginning of the normalisation of Somalia’s relations with international financial markets after decades of exclusion.

Debt relief is perceived as just the beginning of real change for Somalia, enabling the country to restructure budgets, enhance transparency, and focus on poverty reduction efforts. However, Uweis Abdullahi Ali, an economist at the Mogadishu-based think tank, the Heritage Institute, emphasised that while debt relief is a significant achievement, Somalia must prioritise revenue generation domestically. Ali suggested that foreign direct investment focused on infrastructure and employment could complement grants and loans from international financial institutions.