Saving Somalia Through Debt Relief

[Deeq A.]

Somalia needs humanitarian aid to stem its short-term suffering, but that cash will not break the country’s deadly cycles of drought, hunger, and poverty. To do that, the IMF must forgive Somalia’s crushing debt, just as it has for nearly every other heavily indebted poor country.

LONDON – Julius Nyerere, the first president of Tanzania, once asked his country’s creditors a blunt question: “Must we starve our children to pay our debts?” That was in 1986, before the public campaigns and initiatives that removed much of Africa’s crushing and unpayable debt burden. But Nyerere’s question still hangs like a dark cloud over Somalia.

Over the last year, an unprecedented humanitarian effort has pulled Somalia back from the brink of famine. As the worst drought in living memory destroyed harvests and decimated livestock, almost $1 billion was mobilized in emergency aid for nutrition, health, and clean water provision. That aid saved many lives and prevented a slow-motion replay of the 2011 drought, when delayed international action resulted in nearly 260,000 deaths.

Yet, even after these recent efforts, Somalia’s fate hangs in the balance. Early warning systems are pointing to a prospective famine in 2018. Poor and erratic rains have left 2.5 million people facing an ongoing food crisis; some 400,000 children live with acute malnutrition; food prices are rising; and dry wells have left communities dependent on expensive trucked water.

Humanitarian aid remains essential. Almost half of Somalia’s 14 million people need support, according to UN agencies. But humanitarian aid, which is often volatile and overwhelmingly short-term, will not break the deadly cycles of drought, hunger, and poverty. If Somalia is to develop its health and education systems, economic infrastructure, and the social protection programs needed to build a more resilient future, it needs predictable, long-term development finance.

Debt represents a barrier to that finance. Somalia’s external debt is running at $5 billion. Creditors range from rich countries like the United States, France, and Italy, to regional governments and financial institutions, including the Arab Monetary Fund.

But Somalia’s debt also includes $325 million in arrears owed to the International Monetary Fund. And there’s the rub: countries in arrears to the IMF are ineligible to receive long-term financing from other sources, including the World Bank’s $75 billion concessional International Development Association (IDA) facility.

Much of the country’s current debt dates to the Cold War, when the world’s superpower rivalry played out in the Horn of Africa. Over 90% of Somalia’s debt burden is accounted for by arrears on credit advanced in the early 1980s, well before two-thirds of today’s Somali population was born.

Most of the lending then was directed to President Siad Barre as a reward for his abandonment of the Soviet Union and embrace of the West. Military credits figured prominently: over half of the $973 million in US debt is owed to the Department of Defense. Somalia got state-of-the-art weaponry, liberally financed by loans. The IMF was nudged into guaranteeing repayment through a structural adjustment program.  Repaying the debt today would cost every Somali man, woman, and child $361.

None of this would matter if Somalia had qualified for debt reduction. The Heavily Indebted Poor Countries Initiative (HIPC), created in response to the great debt relief campaigns of the 1990s, has written off around $77 billion in debt for 36 countries. Somalia is one of just three countries that have yet to qualify. The reason: the arrears owed to the IMF. (Eritrea and Sudan have also not qualified, for similar reasons).

The IMF view is that Somalia, like earlier HIPC beneficiaries, should establish a track record of economic reform. This will delay a full debt write-off for up to three years, exclude Somalia from long-term development finance, and reinforce its dependence on emergency aid. Other creditors have endorsed this approach through silent consent.

Somalia deserves better. President Mohamed Abdullahi Mohamed’s government has demonstrated a commitment to economic reform, improved accountability, and transparency. For two years, it has adhered to an IMF program, achieving targets for improving public finance and the banking sector. More needs to be done, especially in terms of domestic resource mobilization. But this is the first Somali government to provide the international community with a window of opportunity to support recovery. We must capitalize on it.

Waiting three more years as Somalia ticks the IMF’s internal accounting boxes would be a triumph of bureaucratic complacency over human needs. Without international support, Somalia’s government lacks the resources needed to break the deadly cycle of drought, hunger, and poverty.

Somalia’s children need investment in health, nutrition, and schools now, not at some point in the indefinite future. Investing in irrigation and water management would boost productivity. With drought-related livestock and crop losses estimated at around $1.5 billion, government-supported cash payment programs would help aid recovery, strengthen resilience, and build trust.

The benefits of these investments would extend to security. Providing the hope that comes with education, health care, and the prospect of a job is a far more effective weapon than a drone to combat an insurgency that feeds on despair, poverty, joblessness, and the absence of basic services.

There is an alternative to IMF-sponsored inertia on debt relief. The World Bank and major creditors could convene a creditor summit to agree to terms for a prompt debt write-off. More immediately, the World Bank could seek its shareholders’ approval for a special mechanism – a “pre-arrears clearance grant” – that would enable Somalia to receive IDA financing. There is a precedent for this: In 2005, the US championed World Bank financing for Liberia, which at the time had significant IMF debt after emerging from civil war.

The technicalities can be discussed and the complexities resolved. But we should not lose sight of what is at stake. It is indefensible for the IMF and other creditors to obstruct Somalia’s access to financing because of arrears on a debt incurred three decades ago as much through reckless lending as through irresponsible borrowing.

Somalia’s children played no part in creating that debt. They should not have to pay for it with their futures.

Kevin Watkins is the CEO of Save the Children UK.