Somalia’s debt relief: Begging a bigger burden for citizens

As Mary Serumaga summarized, “many African countries (including Somalia) are trapped in massive debts arising from external foreign loans that have hardly profited the people. Horrible debts should be repudiated. The citizens need to audit these debts. Moreover, as Thomas Sankara demonstrated in the four years, he was president of Burkina Faso, African nations do not need foreign loans to meet the needs of their people”.

This writing examines Somalia’s debt relief process and the bigger burden it may create if this scheduling goes ahead as federal government of Somalia (FGS) and International Financial Institutions (IFIs) discuss the content. It focuses on the risks and weak/vacuum legal framework which may lead to the accumulation of more debts and the burden it may put on the future generations if not assessed well prior to the execution of the debt forgiveness plan.

According to a policy brief on Somalia debt relief issued by Somalia NGO Consortium in 2019, Somalia’s current external debt problem must be embedded in its historical context. Since independence, Somalia’s past governments contracted loans from bilateral and multilateral creditors to finance various political, economic and social objectives.

Most of the external debt was used to fund the former government’s ambitious Public Investments Program and to provide balance-of-payments support while a significant portion of the debt was also used to finance the government’s military expenditures from the 1960s through to the late 1980s, including years of civil war.

30 years later, Somalia’s external debt is estimated to be US$ 5 billion (as of the end 2019) with a total of 27 known creditors that are grouped into three categories: multilateral, Paris Club and non-Paris Club. Also, according to the Somalia NGO consortium briefing, the top five (5) largest creditors are the US (~22%), Italy (~13%), France (~9%), the World Bank (~11%) and the International Monetary Fund (IMF) (~7%). It is also vital to note that Somalia’s external debt data are estimates, with no final reconciliation records from the government to validate its current external debt database with creditors.

This shows that the country’s debt burden presents a gruesome picture of distress. This is indicated by the country’s huge debt of $4.8 billion, equivalent to $416.67 indebted to every citizen (as of the last population estimates of 2015). It is also expected to increase by 2040 and beyond if not paid or get other mechanisms to keep bonded interest low of where it is for now at least, but both need efforts, and hard work with sound good governance and legal framework to support which is not visible in Somalia at the moment.
With these debts already on our books, the majority of country’s population seventy percent (70%) was born after 1980s, the start of Somalia’s downfall era and received limited benefits of what our current external debt of USD 5 billion spent on, such as the so-called developmental projects which left zero sustainability and impact to the people now indebted.

Heavily Indebted Poor Country (HIPC) Initiative

For Somalia to qualify for the debt relief, it must meet the criteria of the heavily indebted poor country (HIPC) Initiative. The HIPC Initiative links debt relief with poverty alleviation, making it a condition that eligible countries formulate and implement a poverty reduction strategy paper (PRSP) that outlines specific government interventions and/or policies that aim to alleviate poverty in the country.

But if study Somalia’s current situation deeply, and compare to the criteria set to meet HIPC initiative, it clearly shows that Somalia is nowhere near to achieve the required target, as the country fragmented into fiefdoms run by clan leaders with opposing interest, and Al-Shabab (AS) controlling large area in the south-central. As a HIPC benchmark, Somalia should have drafted a poverty reduction strategy paper (PRSP) to meet one of the key debt relief requitements, but so far nothing was developed to be eligible for debt cancellation. Let alone to develop poverty alleviation strategy for the whole country, federal government of Somalia (FGS) is battling to secure Mogadishu while federal states and FGS disagree political transition for 2020/21 federal election, in addition, of Somalia-Somaliland talks issue which shows no progress since its commencement close to a decade ago. If not to be ignored, International Community (IC) is looking a blind eye on all these unreal possibilities that exist and pushing Somalia to the debt relief scheme, but off course nothing costs for free, there must be benefits in return of forgiven debts for the creditors.

Internal risks associated with debt relief process

Somalia is closing to the debt cancellation process and hoping to reach a decision point in the spring of 2023. This is great step forward for Somali people, but this has to come with real institutional and legal reforms, change of the status-qua approach and leaders with sound political mind who sees the country beyond the selfish lens of only us to remain and individual self-interest tendency.

It is also important to highlight the risks associated with receiving new foreign loans and grants without putting in place a proper institutional and legal mechanism that safeguard them, plus a sound political stability (inclusion of FMS, and other stakeholders). It is also essential to further study before receiving new loans, how will it impact again the country’s access to its untapped resources that are critical for economic recovery and socioeconomic development.

As Somalia’s transitional period ended in 2012, and establishment of federal government with legitimate legislature and executive branches led to renewed international recognition of the FGS and its re-engagement with the international community in 2013; this, however, does not mean that the country’s institutional frameworks are set and fully functional. Post transition period, the country inherited provisional constitution (no progress since 2012) with no clear roles and responsibilities between government institution, such as federal-state levels and among others. It is also worthy to note that the absence of FGS-FMS legal binding agreement (national legislation) on natural resources sharing will further stalemate on how new loans and grants for developmental projects will be distributed to states and the federal government. This vacuum creates institutional weakness and new political instability will arise. A real example of this is the current rift between some federal states and federal government over the national electoral process in 2020/21.

No clear check-balance for public accountability between government branches are often seen as a significant part of the anticipated loopholes for bigger debt burden. Apparently, there is no clear separation of powers between the government institutions (and if exist, not acted accordingly), such as parliament performing its rightful responsibility of overseeing the executive actions for public accountability and transparency, functioning independent judiciary sector without outside interference (no judiciary service commission in place) and the executive delivering services to the citizens within the legally set parameters.

Furthermore, the current mixture of executive and legislature (lower house) is an indication of check-balance absence where the executive mistakes are defended in the parliament instead of being scrutinized which left zero accountability for the legislature, because of executive’s two hats of being MPs and as well as ministers. This can also be attributed to the state level administrations as they exercise similar actions as that of the federal government.

The rampant corruption is another risk that may burden the debt to the future generations where few individuals (those in position of power and access to resources) get richer and vast majority of citizens remain poor and even pay higher the price.

Somalia is ranked world’s most corrupted nation by the transparency international every year for the last decade and so. This may fuel citizen’s mistrust towards government to act on their behalf to receive new loans, grants and other contributions where every year, the same government is accused of widespread corruption. We should know that this is not an easy spot for a country to take every year and then, unless there should be indicators that puts Somalia in this spot annually. No lesson learnt from all these years as precautions and/or mitigation measure to prevent this heist crime except putting junior staff on trial for a petty cash theft accusation while the big fishes accessible to huge sums of money ($) still out there. This puts the country at risk where public funds are embezzled by those (top offices) entrusted to protect and trap in future generations a bigger burden.

Weak/vacuum legal framework

If look at from the legal framework and compliance perspective how our government business transactions are run, it is quite easy to understand, why Somalia is the most corrupted state globally. This is because government never complies existing legal frameworks to the management of public funds or does it partially to where it benefits.

A country can develop good laws, but the enforcement and application of laws are another stage that needs commitments. Somalia endorsed a PFM Act (2019) to manage public funds for accountability and transparency purposes, but there is implementation and compliance challenge.

A clear example of this challenge are articles (7,21,23) of the PFM Act which stipulates that both chambers of federal parliament should review and pass the national budget, but the executive, particularly Ministry of Finance chooses otherwise and engages only with House of the People (HoP) on national budget approvals while it ignores Upper House (UH) role and the PFM law that dictates the process. A prime example is the 2020 supplemental budget review process, where only HoP reviewed and approved, while the ministry of finance is executing the budget after receiving presidential assent without UH participation. This violates the PFM Act provisions and challenges the legitimacy of this revised budget execution. The same process is happening now to the 2021 national budget approval. All of these is occurring to just keep the status-quo as HoP has vested interest in the executive branch than UH does, because its MPs serve as ministers in the cabinet.

Also, promulgation of government protected financial laws are fundamental issues that would encourage wider corruption which will then aid to burden Somalia’s future debt (if current debt cancelled and allow government to borrow new money from external creditors). A clear signal of this is the new PFM law ( 2019) article (19) which describes that the minister of finance has the power to transfer and use the monies in the contingency fund for un-budgeted situation (it does not specify other than those intended in the first place such as disasters) without seeking prior approval from the parliament but rather provide a justification memo of what was used for the funds to the parliament during the closing of accounts (audit) reports which even don’t come on time for legislature to examine if there are wrongdoings and close the books. But what can legislature study if executive opts not to submit on time the financial reports in a fear of irregularities may be disclosed in the eyes of the taxpayers.

Off course, contingency fund is easily documentable since it is not attached to a particular head or sub-head activity and may be used for non-beneficial activities/or political purposes with no return to the public and taxpayers’ money may end up in the hands of those trusted to safeguard which in the future, will contribute to citizen’s debt burden. In reality, this encourages public funds embezzlement as the executive has gap within the legal framework that might aid misuse of funds in the contingency.

A real example of this is the 2019 floods in Beletweyne, Hiiraan region where then, Information Minister Mohamed Abdi Maareeye said that the federal government was only able to provide USD half million ($500,000) to support the flood victims in Hiraan while more than this figure was reserved (2.5 million) in the contingency fund of 2019 appropriations act to finance such emergencies. So, someone should ask himself/herself where that money went and what purpose was it used if not in the treasury account. Knowing that there were no publicly notified other government funded emergencies in 2019. I will leave the answer to you.

Beyond the moral hazard to Somalia’s past, current and future leaders have the same desire to simply swipe some of the money with hope to remain in power. There is also the moral hazard to international lending institutions. External creditors may lend Somalia money in the knowledge that the unstable political calamity, fluctuating commodity prices (no currency), weak financial management, and other circumstances, will likely struggle to repay. However, the business remains lucrative because the lender can hold our leaders’ feet to the fire until they sign away untapped natural resources or even yet undiscovered ones. This is the effect of Mozambique’s guarantee by which it renounced “any immunity which it or its property or income may enjoy in any jurisdiction.”

Recommendations

The international community (IC) should put a real pre-required condition for Somalia to meet the benchmarks for the debt relief and other budgetary support. These requirements should include to have a standard PFM and audit law that guarantees the independence of the office along with establishment of independent judiciary. If IC does not take this seriously, the country’s future generations are in danger of slipping into a major debt crisis than experiencing now. It is with believe that the anticipated developmental projects foreseen Somalia to receive after the debt relieved from the same external creditors are too expensive and burden the country with more debts than it is now and can’t hope to repay, if this chain not revised otherwise.

Curbing corruption

The government also need to crack down on rampant corruption, especially in the public offices and tendering process. In this context, this development relies heavily on willingness of national leaders, to acknowledge, accept, support, and encourage the difficult transition of formalizing the economy. It also needs in the first place, executive leaders to embrace zero-tolerance to corruption and demonstrate a good track record of economic and financial management, including solid public financial management.

Such steps, although basic, are essential to establishing an environment that positions the government as a stable and trustworthy partner prepared for to receive future loans. The federal government now need to prioritize and approve related legislation; for example, one important milestone will be assenting and enforcing the law that aims to stablish an independent audit office.

Adoption of Debt Audit law

Somalia need to enact a law that makes debt audits a required component of the annual audit of public expenditure. An example of this as benchmark is that December 2016, Philippines enacted a similar law that makes debt audits a required component. After endorsement of this law, many projects in Philippines including some funded by loans from the World Bank, the Asian Development Bank and the Japan Bank for International Cooperation were scrutinized in 2017. This law may help Somalia Federal Parliament to repudiate any debt found to be illegal, illegitimate or odious to ease the accumulation of debts and avoid burdening future generation.

Citizen’s debt audit

Citizen’s debt audit is vital as the lending institutions have an incentive to enhance the facts about their own performance. Not only citizens auditing debts, but this will also create a value for money approach where sustainability and impacts of the projects financed by loans will be measured against how people are satisfied with these investments and areas funded.
Finally, though the Federal Government of Somalia and International community are adamant that the debt relief is mutually beneficial to Somalia and its creditors. if both do not analyze the process carefully and come up with remedial ways to solve the already visible problems, it shows that these arrangements will expand the debts and lock Somalia into debt trap where the lenders take the ownership of country’s untapped natural resources in exchange of the debt owed to them, and create a new cycle of debts burden. In a simple answer, the current debt cancellation process, if not due diligently addressed, is like a government begging bigger burden for its citizens.

Mohamed Ali Rooble

roble775@gmail.com