Abdirahman D. Beileh, Minister of Finance of the Federal Republic of Somalia with World Bank President David Malpass. Photo credit Twitter
Ever since Somalia debt relief process surfaced there were common questions asked by many members of the public.
Many of these questions are still outstanding and will need thorough explanation to the general public.
In this piece, I will attempt to layout the opportunities and challenges that Somalia debt relief will bring to the arena.
Debt relief process is vital instrument created by international Financial Institutions (IFIs) namely World Bank Group (WBG) and International Monetary Fund (IMF) among the others.
The creation of this mechanism has been consulted with all creditor nations including those providing loans to different nations.
The mechanism and the processes Somalia is going through is not exception, it is a standard program managed and administered by IMF and WBG.
If a country’s prospect of debt repayment is none existence due to circumstances, these institutions have created mechanisms that will allow that nation to go through rigorous tests and conditions. One of them is Staff Monitoring Program (SMP) this in lay man’s terms, means that countries’ expenditure and income must be accounted for in a transparent manner. This might include prevention for the country to even seek loan from within ie its business community.
When (IFIs) are satisfied with that the country met the SMP conditions herewith Somalia, IFIs then present the data to creditors and that country is being progressed to a simple mechanism called Heavily Indebted Poor Country (HIPC) initiative.
This method of debt relief is agreed by all the nations that give credit to other countries. HIPC will also have its specific conditions which in Somalia’s case is good governance, transparent and anti-corruption procedures that Somalia must adhere to in the next three years.. Somalia is now HPIC decision point which means Somalia can now formally seek debt relief with the above said conditions.
In the eyes of the IFIs, Somalia must also work with Federal Member States while also overcoming Macroeconomic reform challenges. Hence, this also means that Somalia must also always seek to balance its books and adhere to public finance management reforms.
Somalia today has reached this milestone and it is something every Somali must be proud of.
International investors can now seriously give their attention to fast resources of Somalia despite the security challenges this might bear. Somalia can also access several none-credit development and grants which in my opinion if properly and wisely used could benefit to every Somali individual and bring about genuine developmental projects.
Somali businesses will have opportunity to trade internationally by using Somalia registered banks backed by Somalia Central Bank grantees hence Somali banks letter of credit (LC) will be accepted by other banks and businesses internationally.
Many foreign investors are hugely interested Somalia’s marine resources, Hydrocarbon and agriculture sectors. This will pave the way fast opportunities for Somalis including job creation and income generation, which will lead to better livelihood and suitable economy.
The most notable challenges include how Somalia will acquire new loans? Who will be responsible for evaluation and selecting which projects deem to be worthy to seek loan for?
To name few other forthcoming risks; when Somalia wants to invest a project and wants to seek loan for it, who will oversee the whole process? Will it be one ministry? Will it be the Prime Minster? Will it be the President? Or will be a system that has checks and balances and is not confined to one person or entity?
To attempt to answer some of these questions; it will be wise for Somali people and its government to put together debt management framework. This means a framework not dependent of a single signature or entity but rather an accountable mechanism that is well understood, explained, analysed, digested and most important inclusive so that no entity for example a Federal Member State will claim that a sitting government took loan on their behalf without their consent.
Indeed, a system that is very clear and transparent that limits loans a sitting government could acquire beyond such test/criteria developed through an independent fiscal institution within Somalia. In most countries, the Central Banks play a vital role in these decisions if given monetary and policy independence.
To illustrate bit more, Somalia might limit a loan that sitting government could seek not to exceed 10 Million US Dollar, beyond 10 Million it has to go through debt assessment team who also check value for money, evaluate loan necessity, debt servicing cost benchmarks checks and finally send that to the parliament. If a sitting parliament approves it, proper procurement and tendering processes must be in place to avoid a sitting minister not to give contract to a corporation/company or other entity he/she has relationship with or provide him/her kickback etc.
These suggested systems are not exhaustive but could be improved and fine tuned the idea here is; Somali public must be aware and understand the complexity of this subject matter when future debts/agony is being placed on their future generations
Surely a debt signed and approved by a sitting government will be burden to Somalia. To sign a debt agreement paper is simple to service it and payback is however incredibly tough business and we must avoid falling into past traps if we are wise and awake.