what happened last week - Somalia no longer got 99% debt



what happened last week in Asia, Africa and the Americas

 

 
Hey, this is Sham Jaff, your very own news curator. Each week, I highlight some of the biggest stories from regions and countries that are historically underreported in Western media. My goal is to burst our Western-centric bubbles, and expand the view we hold of the world we share with one another. Since I am completely self-funded and have no sponsorships, I rely on my readers' financial support 100% to keep this newsletter going. If you want to pitch, click here. I also have a student discount; just ask me. Questions, comments, concerns? You can reach me anytime by replying to this mail. And if this newsletter was forwarded to you, you can sign up at whathappenedlastweek.com

Today in the newsletter: Issue #372 is about Somalia's debt. It's shrunk by a lot-a lot. And to helo you understand what this means, I explain, or aim to explain, the current international economic order (lol, no biggie), and what African economists have been proposing when it comes to debt relief for African countries and why that is so important for climate action, too. Plus, I need your help telling The Guardian that they mistyped a Somali minister's name (not because I deeply care about that minister, but because it's a sign of respect. Unless, The Guardian writes Bidne (instead of Biden) now and then.)

Somalia's debt to the Paris Club went down by 99%

What happened
Somalia owes a lot of debt to foreign countries and international financial institutions. Last week, the Paris Club, comprised of some of the world’s richest nations (not an actual organization, more like an informal group of very rich countries which lend money to other countries), announced, 'we cancel 99% of all the debt Somalia owes us'.

Why this matters
For 30 years, Somalia was largely cut off from international financial markets, meaning they couldn't borrow money or engage in other financial activities that countries typically do to grow their economies. Now, with this debt relief, Somalia can start to normalize those relations, opening up new opportunities for economic development and growth. Some 3.3 billion people are living in countries that spend more on debt payments than on education and health care. 

Tell me more
In a statement released by the Paris Club, which is run by senior officials from the French Treasury, the United States, United Kingdom, Russia, Norway, and Japan, announced the cancellation of US$2bn owed to club members as of January 2023. Some of that money was forgiven just because individual countries felt like being 'nice' to Somalia after all (this is an exaggeration), and the rest was 'forgiven' under the Heavily Indebted Poor Countries (HIPC) Initiative.

What's the HIPC Initiative?
The initiative is a program developed by the International Monetary Fund (IMF) and the World Bank. Its purpose is to help countries with very high levels of debt—so high that they can't manage them—to reduce their debt burdens. These debts are considered "unsustainable," meaning the country can't pay them back without harming its economic future or its citizens' well-being. Somalia qualified for this program in December, which was a significant step. By qualifying, Somalia became eligible to have up to US$4.5 billion of its debt forgiven or erased. That very month, when the announcement made headlines, the country’s president, Hassan Sheikh Mohamud, wrote in a column for The Guardian, "Somalia’s debt relief journey was no simple task; it took nearly a decade, three different administrations, two presidents and four finance ministers to attain debt relief from the boards of the World Bank and IMF on December 13. Debt relief is just the beginning of real change for Somalia."

How did Somalia fall into debt?
Somalia built up most of its debt during the time Siad Barre was in charge. He ran a military government from 1969 until it fell apart in 1991. During his rule, Somalia borrowed a lot of money from other countries and international organizations. After his government collapsed, Somalia couldn't pay back these loans, so the debt kept growing because of the added interest over the years. This means the amount they owed kept getting bigger even though they weren't borrowing more money, simply because they weren't able to pay back what they already owed.

What's the reaction been like?
Somalia's government is hyped. In a post on X, formerly Twitter, Somalia’s finance minister, Bihi Egeh, said: "Achieving full debt relief will transform Somalia’s future and allow our government to create fiscal space for basic public services." Somalia’s information minister, Daud Aweis, said on X that the agreement marked a "big milestone in the country’s journey to financial recovery".  Kristalina Georgieva, who leads the IMF, said it's a big step forward for Somalia to grow its economy and reduce poverty, and Mike Nithavrianakis, the UK's ambassador to Somalia, stated that the UK, which lent money to Somalia, is committed to completely forgiving Somalia's debt.

What now?
Uweis Abdullahi Ali, an economist at the Heritage Institute, a Mogadishu-based think tank, said the debt relief "is a big achievement for Somalia and allows [it] to begin re-engaging with credibility with international financial markets." Now, Somalia can get different types of financial support like low-interest loans and grants, which can be used to improve public services like education and healthcare.

Zoom out: Debt is not just a Somali issue. In fact, David McNair for The African Argument last autumn wrote an article about how African countries in general are paying a debt premium that's significantly higher than what would be expected based on their risk profiles, essentially making their debt 500% more expensive compared to what they would pay if they borrowed from institutions like the World Bank. As a result, as stated in this article by Eriga Reagan Elijah, Dianey Mugalizi, Vanessa Nakate and Pierre Wokuri for the same outlet, the Global South need to unite and push for significant changes in the global economic system while ending the cycle of neocolonialism in the international financial order.

Un-Fun Fact: I noticed that The Guardian article got the name of Somalia's finance minister wrong. His name is Bihi Egeh, not Bihi Eged. If you have an X account, make sure you tell them you have noticed. I did it here.

Hey, thanks for reading.

You're reading the Free version of this newsletter. As a VIP Member, you get an 80% longer email, covering many, many more countries in one email. Since I am completely self-funded and have no sponsorships, I rely on your financial support 100% to keep this newsletter going.

The rest of Issue #371 is packed with good news. I profile a high court in Japan that last week ruled that the country has very conservative views on same-sex marriage. Plus, I bring you an Indian maestro of love songs, a Brazilian feminist novel about women in the Amazon, a surreal Turkey comedy about... life?, a South Korean comedy about a woman that turns into a chicken nugget, the latest research on Nigeria's past, some good news from Senegal (they're having elections next week!), and so much more.


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