Thursday April 20, 2017
Arcane rules mean that debt accrued decades ago is denying Somalia access to funding that might stave off famine. Officials should simply write off the arrears
Abdulrahman Mahamud is one of the lucky ones. I met the four-year-old two weeks ago at an emergency clinic in the town of Shada, in Puntland region – an area at the epicentre of Somalia’s devastating drought.
Diagnosed with severe malnutrition and pneumonia, Abdulrahman was brought to the clinic after his mother walked 90 miles in search of food and medical help. He survived – just.Somalia’s debt is an anachronistic leftover from the great debt-relief reforms of the 1990s. Headline figures tell their own story: the country’s external debt is running at about $5bn (£3.9bn), or roughly 80% of GDP. At current rates of revenue collection, it would take 60 years to repay the debt.
For every good news story, however, there are a growing number of tragedies. A million Somali children need treatment for malnutrition, and more than 350,000 are at imminent risk of starvation. Epidemics of acute diarrhoea and cholera have already claimed hundreds of lives. These are lives that could – and should – have been saved. In the absence of a more effective international response to the drought, more deaths will follow.
One of the least visible but most damaging barriers to decisive humanitarian action is Somalia’s debt.
If you thought Africa’s debt crisis was dead and buried, think again. In Somalia, it is alive, well and cutting a vital financial lifeline. But as finance ministers gather in Washington DC for the spring meetings of the International Monetary Fund (IMF) and World Bank, they have an opportunity to change this picture.
Almost all of Somalia’s debt stock is in accumulated arrears. Most of it can be traced back to the 1970s and 1980s, when the military dictator Siad Barre went on a spending binge, buying arms and investing in prestige infrastructure projects as profligate borrowing and reckless lending went hand in hand.
Barre knew how to deal with his creditors. Exploiting cold war rivalries, and appealing to Islamic identity and regional politics, he built up an impressive docket of IOUs.
Today, the IMF and World Bank are sitting on more than $800m of Somali debt. Paris Club creditors – principally the US, Italy, France and Russia – are on the hook for another $2.3bn, having imposed penalty interest rates for non-payment for more than 30 years. The bulk of the balance is held by creditors like the Arab Monetary Fund, Saudi Arabia and Kuwait.
Somalia’s debt will never be repaid, but countries in arrears to the IMF and World Bank are not eligible for debt relief under the heavily indebted poor countries initiative. Nor can they receive funding through the World Bank’s International Development Association (IDA).
In effect, the arcane rules on arrears are excluding Somalia from one of the largest humanitarian financing pots. The World Bank president, Jim Yong Kim, has recognised the urgent need for the institution to play a bigger role in supporting countries coping with conflict and humanitarian emergencies.
At the spring meeting, the World Bank’s board will be asked to approve $770m in crisis response funding for the food emergencies in the Horn of Africa and elsewhere. The bank has announced another $1.6bn in financing available for social protection and the delivery of basic services in countries threatened by famine.
But not a single cent of IDA money will reach Somalia unless the arrears are cleared. In effect, rules governing debt relief are trumping the moral imperative to save lives.
All it would take is a creditor agreement to change the rules and write off Somalia’s IMF-World Bank arrears. The country could then use the IDA’s crisis window to close the gap between current donor pledges and the estimated finance needed for the first half of 2017, which totals about $375m.
There are wider reasons for action at the Washington meeting. The term “failed state” was invented for Somalia. Riven by clan factionalism, lacking the legal, financial and social institutions of a nation state, and marked by endemic poverty, the country’s future remains in the balance.
Nevertheless, the new government led by Mohamed Abdullahi Mohamed has signalled a commitment to reform and re-engage with donors. The IMF now describes itself as “heavily involved in the provision of policy advice” to Somalia. Valuable as that may be, it is not the currency Somalia needs to stave off a famine and build confidence in the government.
Cancelling the debt would give Somalia access to long-term development finance, create the conditions for private investment, and open the door to a vital stream of humanitarian funding.
Debt cancellation operations invariably come with complex technical negotiations and lengthy delays. But as finance ministers gather in Washington DC they might ask one question that helps to cut through the complexity: should Somalia’s children starve to pay for a debt crisis they played no part in creating?