A renewed political dispute between the federal government of Somalia and the Puntland federal member state, and a failure of the fragile reforms to boost revenue collection and fiscal transparency, could endanger Somalia’s hope for full debt relief from the International Monetary Fund and other multilateral lenders by the end of the year, officials and experts warn.
“Strengthening fiscal transparency is a requirement for Somalia to secure not only debt forgiveness but also more loans from the International Monetary Fund,” said Hussein Abdikarim, Somalia’s former presidential adviser.
“If Somalia fails to continue the steady progress it has made so far on its financial reforms, it could lose hope of paring its debt to around $550 million from $5.2 billion by 2023,” he added.
In February 2020, the executive boards of the IMF and the World Bank announced that Somalia was eligible for debt relief following economic and institutional reforms.
In October 2022, the IMF said its staff reached a staff-level agreement with Somalia that would allow the release of $10 million to the East African country, once reviewed and approved by the board.
Economic and financial experts are concerned about challenges that could reverse the hard-earned gains of the poor and heavily indebted tiny horn of Africa Nation.
“Lack of competitive procurement, lack of agreement(s) between the levels of government and its federal member states on fiscal federalism, and lack of transparency in several oil and gas deals are the main current challenges that could jeopardize and hinder Somalia’s progress towards winning reliable financial credibility,” Hussein Siad, an independent economic consultant and Somalia’s former vice minister of finance, told VOA in a phone interview.
“A government cannot work without the necessary mechanisms to operate, including laws, regulations, manuals and trained or skilled staff members that can implement government policies,” Siad said.
The debt owed by Somalia to external creditors is estimated to be more than $5 billion. Somalia owes the single biggest debt — $1 billion — to the United States.
Countries that become eligible for the Heavily Indebted Poor Countries (HIPC) Initiative of the IMF and World Bank have to commit to economic and financial reforms, as well as poverty reduction and political stability.
Corruption
In response to the concerns, Somali President Hassan Sheikh Mohamud on Thursday signed a set of anti-corruption directives aimed at boosting the legitimacy and credibility of the country’s financial institutions, a government statement said.
In the early morning Cabinet meeting, Somalia’s Council of Ministers approved the anti-corruption directives before the president endorsed them.
Reading a statement, government spokesman Farhan Jimale said, “The key directives, eight in number, included combating corruption, fostering accountability, strengthening public financial management systems and meritocracy, as well as improving the efficiency and effectiveness of government institutions.”
The statement also said, “The announced steps seek to increase transparency and accountability through financial disclosures by public officials, enhanced enforcement capacity, and expanded merit-based recruitment.”
The IMF’s board is expected to review the staff-level agreement reached with Somalia in early December.
Mohamud has urged an immediate implementation of the directives.
In 2019, his predecessor, Mohamed Abdullahi Mohamed, signed the country’s anti-corruption bill into law, but critics say the implementation of the law has been a challenge.
The nonprofit Transparency International ranks Somalia as one of the most corrupt countries in the world.
In its 2022 Corruptions Perceptions Index, Transparency International put Somalia at the bottom, saying, “Along with constant violence, Somalia’s President Hassan Sheikh Mohamud dissolved two very important anti-corruption bodies with a ‘wave of the hand’ decree.”
According to Somalia’s Criminal Code, active and passive bribery, attempted corruption, extortion, bribing a foreign official and money laundering are crimes.
“The debt relief is a big hope for Somalia to reclaim its financial position within the international community and allows our country to rejoin global economy after a 30-year exile,” a senior government economist told VOA on the condition of anonymity because he was not authorized to speak.
The official said if corruption and unnecessary political disputes remain, Somalia will miss a golden opportunity to clear its debts.
Somalia’s outlook remained clouded, with GDP growth for 2022 projected at 1.9%, down from 2.9% in 2021, and inflation projected to reach 9% from 4.6% in 2021, the IMF said.
Political dispute
The concerns grew following tension over a long-simmering dispute between the leaders of the federal government of Somalia and the northeastern semi-autonomous region of Puntland.
For months, Puntland has been reluctant to collaborate with the federal government on national issues, including debt relief programs, accusing Mogadishu of refusing to share power and foreign aid with the regions in line with the country’s federal system.
The political dispute took a turn for the worse this week when the leaders exchanged strong verbal accusations.
Puntland President Said Abdullahi Deni on Tuesday accused Mohamud and Somali Prime Minister Hamza Abdi Barre of “attempting to destabilize the relatively stable region.”
“The president and his prime minister have agreed to refuse the Puntland democracy and its willingness to hold one man, one vote elections,” Deni told his supporters.
Deni’s accusations came a day after Barre accused Puntland of jeopardizing the country’s debt relief efforts.
“Somalia’s debt relief program is in danger because Puntland has been refusing to participate in national meetings on the issue,” Barre warned. “If this fails because of Puntland, it will be a black scar on Puntland’s history, and its leaders will be responsible.”
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