Paris Club agrees to cancel $2bn debt owed by Somalia

The Paris Club has agreed to cancel over $2 billion debt Somalia owed its members, to help the country restore its debt sustainability.

Debt sustainability is when a country, without financial assistance (or going into default), has the capability to meet all its current and future payment obligations to creditors.

According to a statement issued on Wednesday by the group, the debt relief signifies 99 percent of the debt Somalia owed to Paris Club members as of January 2023.

“Creditors welcomed and supported the commitment of Somalia to seek a treatment at least as favourable from all its other official bilateral and external commercial creditors,” Paris Club said.

The decision was said to have been made after a meeting on Wednesday between representatives of the Paris Club creditor countries and the government.

The group said the decision followed the completion point by Somalia under the enhanced heavily indebted poor countries (Enhanced HIPC) initiative approved by the International Monetary Fund (IMF) in December 2023.

Reaching the completion point means putting in place reforms agreed to when a country becomes eligible for debt relief and also fully normalising its relationship with international financial institutions.

The Paris Club creditors committed to cancel $1.2 billion in nominal terms under the enhanced HIPC initiative framework to contribute to restoring the debt sustainability of Somalia.

The group also expressed willingness to grant additional debt cancellation of $815 million on a voluntary and bilateral basis.

Meanwhile, a report on October 12, 2023, said Nigeria is leading the campaign for debt relief for African countries from the IMF.

The IMF, however, said there is no total cancellation solution to reduce the debt burden on African countries.