By: Mohamed Abdirahman (Dhabancad).
Introduction
Since the year 2016, the Federal Government of Somalia in support with International Financial Institutions and Governments has carried out relentless efforts in achieving debt relief from the international Creditors. After multi-intentional processes, the World Bank Group and the International Monetary Fund had on December 2023 announced that Somalia has completed the necessary conditions and requirements to qualify at the completion point for HIPC Process.
On March 2024, a number of Creditors, mainly the Paris Club had decided to relieve the debts, whereas some other creditors were also ready to voluntarily follow the suit.
Benchmarks for the HIPC Completion Point
To qualify the Heavily Indebted Poor Country Completion Point, Somalia was required to meet two broad categories of reforms as per the following:
Enactment of nationally agreed and endorsed frameworks and bills that govern and protect the public financial system of the country. The most important bills to have in place were among others:
The Fiscal federalism bill,
The tariff harmonization frameworkl
Establishment of capable federal institutions and robust macroeconomic reforms with measurable success indicators.
The requirements were aimed to put in place functioning financial systems, effective oversight mechanisms, and safeguards against misuse, corruption, and mismanagement.
Did Somalia meet these conditions? The answer is NO, because:
Somalia did not meet the prescribed requirements to qualify the HIPC Completion Point, for the following reasons:
Lack of nationally agreed legislations:
Somaliland, which is constitutionally part of Somalia, has not been and still not, in the state-building process, thus not recognize any legal instrument that Somalia’s Federal Government develops,Puntland has reiterated that it is neither obeying nor adopting to any national bills that Federal Government drafts as long as they are not in accordance with the Provisional Federal Constitution of Somalia
Jubaland had lately revoked to implement the HIPC processes requirements
Other FMS were not also invited for any consultation during the development of the pseudo bills.
Unresolved constitutional and federal frameworks:
As per the Provisional Federal Constitution, the FGS and FMS must politically agree the following fundamental instruments, then incorporate into the constitution before their application for other purposes like the debt relief. The following frameworks are also essentially fundamental for the state-building process:
Fiscal federalism model of the Country
Power sharing mechanism
Resource sharing And the other national contentious issues that the constitution review process is pending to.
Henceforth, any sort of national instruments that the Federal Government develops without an inclusive consultation process with the state-building stakeholders, primarily the Federal Member States are null and void in the essence of the Provisional Constitution. Thus far, any such bill and frameworks could not be grounds for Somalia to qualify the debt relief in the first place.
Historical Overview of Somalia’s Debts
Despite the accumulated interest rates and lack of debt servicing for the aged debts, the Somalia’s debt aged almost a century. Somalia had borrowed its debts mainly in two eras with peculiar reasons for each:
The largest batch was in 1960s to 1970s aimed for two main vital infrastructures; the economy and the security sector
The second batch which was relatively smaller in comparison to the 1960s to 70s was in 1980s which intended to revive the economic and financial crisis of the nation, yet not fruited because the then ruling regime was gradually losing the grip due to multifaceted challenges and difficulties including the opposition factions that commenced in 1978 until the total collapse of the central government system in 1990. Therefore, the Somalia’s economy had too collapsed in 1990s as the whole system of governance fell into chaotic situation and left no for immediate revival.
Why Do Creditors Relieve Debts?
Two main motivations typically drive creditors to grant debt relief:
To prevent a defaulting nation from total economic collapse;To open the door for future investment opportunities in a country with growing economic potential.
Somalia appears to fit the second category—creditors foresee long-term opportunity, despite the benchmarks not being fully met. It seems that Creditors foresaw to open window for future investments for Somalia, hence the impromptu of the debt relief was engaged regardless the fulfilment of the HIPC benchmarks and the blindfolded process.
The prologue to new loans
Somalia is not institutionally ready to obtain access to any sort of new loans (soft loans, concessional loans or otherwise), because there are no agreed upon guiding legal instruments in place, thus far, any accession to new loans might trigger both security and political instability, and it will increase the magnitude of the already rampant corruptions.
Fulfillment of the IMF & Somalia Agreement on December 2023
In a framework agreement between the Somalia Federal Government and the International Monetary Fund stipulates that Somalia improves its financial institutions and carries out solid economic reforms. After the prescribed requirements, Somalia might be allowed to access concessional loans. Such loans would also encompass significant risks
That Somalia Federal Government might extend its pursuance to accessible loans that incur a burden of immediate repayment schemes with high interest rates
The likelihood for misuse and corruptions to the borrowed moneys as long as there are no transparency, accountability and financial protection frameworks
The development projects that the WB Group and the IMF approved for Somalia are partially under concessional loans. Such investments will also require rigid allocation and implementation mechanisms in order to avoid misappropriation of resources.
Adverse Economic Impacts of New Loan Preparations
For the pavement of accessing new loans and to justify that Somalia is creditworthy nation, the Federal Government of Somalia has forcefully imposed unilaterally drafted tariff reforms which demanded an increase of tariff rates to the customs, which they primarily intended for Customs in Mogadishu, Kismayo and Bosaso, but eventually its effects have been confined only in Mogadishu’s Customs points. As a result of the above measures compounded by the financial extortions for the terrorists, the following are the inevitable consequences on the delicate economic activities in Somalia:
The businesses take loans from the local private financial institutions, which they could not pay back due to the above heavy lifting tax burden and in response, the businesses have allegedly doubled the pricing of commodities, hence the end consumers suffer the most,As of informal sources, the private banks in Somalia have halted to lending moneys to the businesses mainly because of devaluation of collateral assets. The value of private lands in Mogadishu have this year 2025 gone down to an estimate of 45% citing that the Federal Government in Mogadishu is auctioning public land properties,Due to the above among other reasons, it is widely noticed that many Somali businesses have either closed down or relocated to the neighboring African countries, namely Kenya, Congo, Zambia, Rwanda etc.
The Somalia’s Current Economic Generation
As we all know, the post – 1990 economy of Somalia has no generational relations to the pre – 1990s. The economic infrastructures including Ports, roads and markets are either newly built or refurbished after civil war destructions in 1990s. the businesses and the owners, for instance; the telecom companies, the Diaspora money remittance and banking institutions and the small and medium enterprises including hotels, restaurants, supermarkets and wholesale and retailers are all new generation, thus the current Somali economic has no defaultable relations to the old debts.
Potential impacts of accessing new loans
Accessions for new loans shall have inevitable consequences on Somalia as per the following sub-headings.
Economic risks
It is likely that more businesses will either close down or relocate due to not able to pay the heightened tariff rates in Mogadishu
In the event for obtaining new loans, it is highly possible that Somalia will fail to abide by attached conditions, thus spiral of pandora box in which the FGS shall repeatedly increase tariffs and punish citizens will occur
As long as there are no agreed frameworks that protect the public financial management system, the corruptions will for sure skyrocket.
Adverse impacts on the state-building process
In case, the Federal Government of Somalia accesses to borrow new loans without pre-agreed utilization guiding principles, there will be serious adverse effects to the delicate state-building process
Unavoidable delays to the finalization of the provisional federal constitution as well as to deliberate and inclusively agree the national contentious issues including the instruments that would serve as fundamental premises for the economic reforms and the federalization of governance systems Deflecting FGS – FMS consultation processes for the state-building resulting from the unilateral accession of loans by the FGS without due processes
In the event of a & b situation, there might be risks of communal conflicts and social disparity over misallocated and misappropriation of resources received under the auspices of new loans.
Recommendations
The following recommendations are based on the current political, security, social and economic insights of Somalia:
The current and future incumbents of the Somalia’s Villa Somalia leadership to halt any efforts to secure an accession of new loans until the following conditions are met
Completing the review of the provisional constitution. “a nation without an agreed upon social contract cannot have a legitimate government, and a country without legitimate authority cannot access international loans”
FGS & FMS to agree the essential tools for the completion of the constitution, which are amongst
Fiscal federalism framework
Resource sharing formula
Power sharing mechanism
Federalization model of the judiciary system
And other national contentious issues
The Federal Government of Somalia to review and reduce the burden of the tariff rates it recently imposed to the businesses that use Mogadishu customs points (Ports)
International community of governments and agencies to continue providing financial grants to support the economic growth and livelihoods, and not to facilitate or support for Somalia to access new loans until it completes the fulfillment of conditions stipulated under the points a & b of the above.
Conclusion
Somalia cannot complete its Provisional Constitution—or establish legitimate governance without resolving key national issues through inclusive dialogue. Agreement on fiscal federalism, resource and power sharing, and administrative frameworks is central to stable state-building.
Therefore, a national consensus for the state-building must be prioritized before Somalia undertakes new financial obligations or accesses to new loans.
PS:
Debt relief is welcome, but the required HIPC benchmarks were notgenuinely met.
Some details in this analysis lack formal reference citations.
A Somali version of this article was released on 9 December 2025.
Mohamed Abdirahman Dhabancad is a Former Minister of Finance & former Minister of Interior and Federal affairs of Puntland, Somalia. Views expressed in this article are those of the author and do not necessarily reflect the position of Somali Stream.