In a historic move aimed at supporting Somalia’s economic recovery, the United States has agreed to cancel $1.1 billion of the East African nation’s debt, representing nearly a quarter of its total outstanding debt. The announcement, made in Mogadishu, is part of an international effort to help Somalia address a decades-old debt burden that has stymied growth and investment.
Somalia’s debt accumulated largely during the military rule of Siad Barre, whose regime collapsed in the early 1990s, leaving the country in a state of civil war and economic decline. The country’s president, Hassan Sheikh Mohamud, described the debt as a “huge weight” on the nation, compounded over years of political turmoil and instability.
On Tuesday, Somalia’s finance minister, Bihi Egeh, and U.S. Ambassador Richard Riley signed the agreement in Mogadishu, formally canceling the debt. In a statement on social media platform X, Egeh expressed gratitude, thanking “the U.S. government and people for their unwavering support of our economic reforms and growth.” Mohamed Shire, a senior official in Somalia’s Ministry of Planning, hailed the “historic” agreement as a critical step forward in Somalia’s ongoing recovery efforts.
The debt relief comes as part of the Heavily Indebted Poor Countries (HIPC) Initiative, a program spearheaded by the International Monetary Fund (IMF) and the World Bank to help the world’s poorest nations reduce unsustainable debt levels. In December 2023, Somalia completed the HIPC program, making it eligible for $4.5 billion in debt forgiveness and allowing it to renew its engagement with international financial institutions after decades of isolation.
Ambassador Riley called it “a great day” for both countries, underscoring that the U.S. had previously been Somalia’s largest bilateral lender, holding about one-fifth of the nation’s total debt in 2018. He praised Somalia’s efforts to implement economic reforms, strengthen financial accountability, and transition to sustainable fiscal practices.
The U.S. debt cancellation follows similar moves by other creditors. In March, the Paris Club, a consortium of wealthy creditor nations, canceled 99% of the $2 billion owed by Somalia to its member states. The debt forgiveness significantly reduced Somalia’s debt burden from 64% of GDP in 2018 to under 6% by the end of 2023, according to the World Bank. In June, the OPEC Fund for International Development also forgave $36 million in Somali debt, assisted by a bridging loan from Saudi Arabia. Egeh noted that these agreements have unlocked new resources for Somalia’s national development.
Despite these achievements, financial experts note that private creditors may still view Somalia as a high-risk borrower due to ongoing concerns about political instability and financial governance. However, Harry Verhoeven, an expert on the Horn of Africa’s political economy, described the debt forgiveness as “meaningful,” stating that it enables Somalia to access more public financing through multilateral development banks.
With the debt burden dramatically reduced, Somalia’s leaders are optimistic about charting a new course for the country’s economic future.
