By Dr. Mohamud M Uluso
Tuesday November 21, 2023
The Somali Government received the good news of
achieving the Heavily Indebted Poor Countries (HIPC) Completion Point (CP)
before the deadline of December 31, 2023, which is a historical milestone for
important reasons. First, the HIPC-CP determines the eligibility for full and
irrevocable cancellation of about 90% of the $5.6 billion of Somalia’s external
debt, committed at the decision point (DP). Second, it confirms the commitment
of Somalia to repay the remaining debt, estimated to be about 10% of the total
debt, amounting $557 million, and any future debt. Technically, this implies
that Somalia’s debt burden is reduced to a sustainable level in relation to its
gross domestic product (GDP) and export earnings (EE), although reality casts
doubt.
Third, it commits the federal government to
increase substantially the financial resources allocated to social sectors to
implement the Poverty Reduction Strategy (PRS). The increase comes from the
forgiven debt, a hypothetical revenue convertible into domestic expenditure. Fourth,
it requires the continuation of the track record of good macroeconomic performance
under IMF and WB supported programs.
In other words, the debt relief promotes sound
macroeconomic management, adherence to the free market principles, recognition
of private sector as the engine of economic development, establishment of
efficient public administration, prudent domestic and external borrowings, and
above all the respect for the rule of law. However, the case of Somalia is
unique in the sense that it’s politically and administratively fragmented without
common macroeconomic governance, which limits the ability of the federal
government to perform macroeconomic functions for Somalia’s socio-economic development
and stability.
Somalia receives debt relief on good will, because
according to World Bank Country Policy and Institutional Assessment (CPIA),
Peace Fund Fragile States Index (FSI), Ibrahim Index of African good governance
(IIAG), Transparency International Corruption Perception (CPI), and UN Human
Development Index (HDI), it fails on all indicators. On the scale of 1 to 6,
the overall 2023 CPIA score of Somalia is 2.1. The sub-score for public sector
management and Institutions is 1.9, which indicates bad governance defined as
systemic corruption, arbitrary policy making, lack of transparency and accountability,
and political marginalization.
In addition, the seven-year discussions
between the Somali government and the IMF staff missions on debt relief have
taken place in Nairobi, Kenya or in Addis Ababa, Ethiopia for insecurity in
Somalia. Unfortunately, that kind of high-risk assessment didn’t motivate the
Somali leaders to repudiate the characteristics of leadership failure that has
derailed Somalia’s peace and state building, despite considerable international
support.
President Hassan’s campaign to defeat Al
Shabab militarily is one of the six pillars of a strategy designed to restore
the Somali State. The second and third pillars are the systematic completion of
the constitution and the enactment of democratic electoral system which lays
the basis for the legitimacy of the political power. The fourth and fifth pillars
are credible security and judicial system and an efficient public
administration. The sixth pillar is good macroeconomic management to fight
poverty, unemployment, inflation and corruption.
IMF has announced preliminary
approval of new Extended Credit Facility (ECF) of $100 million to strengthen the
priorities pursued under the three-year Extended Credit Facility (ECF) of $243.20
million and Extended Fund Facility (EFF) of $52.30 million Somalia received in
March 2020 for HIPC-CP. The loans under
the ECF are zero interest and payable on final maturity date of 10 years while
the EFF loans are concessional with interest rate of 1.05% plus surcharge and
fees and payable in 12 installments upon maturity date of 5 to 10 years.
Few questions came to mind to
highlight the ultimate goals of the debt relief process. The first question is,
do Somalis appreciate the critical importance of having common macroeconomic governance?
Second question is, do Somalis recognize the leadership role of the federal
government on macroeconomic management? Third question is, does the Federal
Government factor in the debt -servicing of the remaining debt of $557 million
plus any additional debt under current economic condition? Fourth question is,
did the federal and state Institutions gain the necessary capacity for pursuing
sound macroeconomic management and good governance? Fifth question is, do the Somali
leaders take into account the correlation between the growth of private entrepreneurship
and direct foreign investment, and the supremacy of the rule of law and credible
judicial system?
One of the reasons behind those
questions is the impression that Somali leaders ignore the common-sense
governance practices and behaviors recommended in the IMF, WB, and UN documents.
For example, one of those documents, issued in October 2015 by the WB under
the title “Somalia Economic Update-Transition
Amid Risks – with Special Focus on Inter-Governmental Fiscal Relations,” argued
the following:
“The
de facto intergovernmental fiscal arrangements that are emerging,
as interim state administrations are formed, will affect what is politically
possible to negotiate as part of the constitution-making process. In
particular, state administrations are occupying most available tax bases, limiting
the scope for the federal government to play its proper role in redistribution.
…… Inequitable distribution of resources was a fundamental cause of conflict in
Somalia.……. Somalia’s new fiscal arrangements should be designed to (a) work as
coherent system, preserving a strong common economic space across the country;
and (b) provide scope to address inequities across regions…. If states without
access to strong revenue bases are supported through transfers, they will be
less likely to look for economically harmful ways to raise revenue.”
Today, Somalia faces the
intractable problem of negotiating genuinely fiscal federalism to perfect the
federal system. Views circulating within various constituencies foil the establishment
of coherent system of governance, including common macroeconomic governance. Despite
institutional and legal gaps, the following national priorities pursued during
the past seven years will be pursued in the next three years:
1. Mobilization
of domestic revenues to support self-sufficiency, provision of public services,
and social stability.
2. Development
of national, digital identification (ID) for critical objectives.
3. Strengthening
of public financial management and debt management.
4. Continued
deepening of the Central Bank Capacity in terms of supervisory on financial
institutions, and the analytical and operational capacity to manage liquidity
and foreign exchange operations for the reintroduction of Somali Shilling. Somalia
is de facto dollarized economy.
5. Strengthening
the capacity of the Financial Reporting Center (FRC) to enforce compliance with
the AML/CFT laws and regulations.
6. Continued
deepening of the efforts to improve the private businesses environment for competitiveness,
economic growth and development.
7. Enhancing
the production and dissemination of reliable macro-economic statistics for
effective policy formulation, evaluation, forecasting, transparency, and
accountability.
8. Strengthening
the fiscal budget preparation and execution, enhancing parliamentary oversight
functions, and the quality of the general government fiscal reporting.
9. Deepening
of the inter-governmental fiscal relations and consolidated reporting of FGS
and FMS fiscal operations in line with IMF GFSM2014 Standards.
10. Implementation
of national anti-corruption strategy.
The IMF, the WB, the AfDB,
and the UN Security Council have consistently highlighted the risks stemming
from bad governance, the defilement of the federal constitution and federal
system, and the sham elections. Many failures and crisis were temporarily mitigated
by the interventions of the international community. Therefore, Somalia faces the
serious choice between going back to clan fiefdoms or moving forward and expediting
constitution-based peace and state building as substantiation of the national
reconciliation and honor of the sovereignty, territorial integrity, political independence
and unity of Somalia, recognized and respected by the international
community.
Dr.
Mohamud M Uluso
[email protected]