On Dec. 3, the African Development Bank Group announced that it approved additional debt relief for Somalia, amounting to $17.68 million and marking another milestone on the path to full debt-free status. The Bank Group’s lead operations adviser for Somalia, Bubacarr Sankareh, said, “Somalia has earned this moment through determination and discipline.”

This milestone represents the convergence of persistent national effort and a strategic international partnership. Through coordinated bilateral and multilateral engagement, Somalia secured debt alleviation, most notably under the Heavily Indebted Poor Countries Initiative, launched in 1996 by the International Monetary Fund and World Bank to provide relief to countries burdened by unsustainable debt, while simultaneously reforming its economy and reconstructing state institutions. These efforts are notable for a country that endured decades of conflict and institutional collapse.

The Weight of Historical Debt

Most of Somalia’s debt accumulated during Siad Barre’s military dictatorship, which collapsed in 1991 and plunged the nation into civil war. These debt levels, coupled with instability, limited investment in health, education and infrastructure. In 1993, Somalia’s Human Development Index stood at 0.221, reflecting the lived consequences of these conditions. The debt crisis also severed Somalia’s engagement with global financial markets, deterring investors, creditors and potential trade partners who might otherwise have contributed to reconstruction efforts.

The Path to Relief

Breaking free from this debt trap required Somalia to meet exacting standards under the HIPC framework, which supported more than 30 heavily indebted nations. Participation required demonstrated implementation of domestic structural reforms. Somalia’s reform package was comprehensive and prioritized rebuilding state institutions and restoring public finances while incentivizing a competitive private sector.

With more than two-thirds of the population living on less than $2.15 a day, the government launched Baxaano, the nation’s first social safety net program. This initiative provided nutrition-linked cash transfers and emergency assistance to 3.7 million people. These reforms enabled Somalia to complete the HIPC process in December 2023, securing $4.5 billion in debt cancellation.

In March 2024, nearly all debt owed to members of the Paris Club, a group of wealthy creditor nations, was canceled. This cancellation is set to be finalized by the end of December 2025. In June, a further relief agreement with the OPEC Fund for International Development cleared $36 million. In November 2024, the United States, Somalia’s largest bilateral lender, which held approximately 20% of total external debt in 2018, forgave $1.1 billion in loans.

The cumulative impact of these measures reduced external debt from 64% of GDP in 2018 to 4.9% in 2025. This fiscal transformation occurred alongside measurable poverty reduction and strengthened institutional capacity.

Unlocking Resources for Development

Debt relief in Somalia means resources previously used for debt servicing can now fund social programs and infrastructure, allowing the government to better implement its National Transformation Plan. Sankareh stated that alleviation “opens the door for stronger institutions, better services and brighter prospects for Somali citizens, with impacts felt in classrooms, clinics, farms and markets.” Improvements have already been noted in health care, education and infrastructure.

Restored creditworthiness may reverse the investment drought that persisted for decades, particularly following Somalia’s recent integration into the East African Community, which provides access to regional markets of more than 300 million people. Somalia’s coastline positions it to develop blue economy sectors ranging from fisheries and port infrastructure to maritime transport.

Somalia stands at a turning point, with the potential to follow the paths of Uganda and Rwanda, where foreign investment flows and capital reforms following conflict and debt relief supported sustained investment in public infrastructure and transformative sectors.

Debt forgiveness provides fiscal breathing room, but sustaining momentum requires transitioning from grant dependence toward broader financial market participation. This includes developing sovereign bond capacity, expanding equity markets and deepening microfinance penetration. The International Monetary Fund identifies strengthened financial oversight and regulatory reform, including modernized fiscal codes and streamlined customs, as essential for attracting sustained investment. An effective tax system also remains necessary for long-term domestic resource mobilization.

A Model for Post-Conflict Recovery

Somalia’s debt relief trajectory offers insights for countries facing legacies of conflict and underdevelopment. It demonstrates that fragile states can rebuild credibility through governance reforms and transparent financial management. While international cooperation proved essential, progress ultimately depended on Somalia’s ownership of the reform process.

As Somalia’s deputy prime minister, Salah Jama, told the World Bank’s Fragility Forum, “We are out of failure … and working very hard to get out of fragility,” a statement that reflects both progress made and the vigilance still required. Debt relief in Somalia demonstrates that countries committed to reform, supported by coordinated international engagement, can overcome deeply entrenched challenges.

– Caroline Sheehan

Caroline is based in Edinburgh, UK and focuses on Good News, Politics for The Borgen Project.

Photo: Flickr