Thread by @Barkinka1

Several people asked me questions about the maze of debt relief. I was waiting for the outcome of Paris Club creditors meeting which took place 2 days ago. So, here’s my take on the entertaining subject of Heavily Indebted Poor Countries (HIPC) Initiative: Somalia edition

THREAD

IMF stated in its press release on March 25th, 2020 (no 20/104):

“Somalia’s external debt burden is expected to fall from about US$5.2 billion... in NPV terms as of end-2018 to US$557 million... once the Completion Point is reached”

imf.org/en/News/Articl…

3.However, you’d be confused if you relied on IMF’s own 2019 Article IV consultation as it would seem to contradict above statement… for this you need the Nominal & NPV preliminary figures produced two months ago under the Enhanced HIPC Initiative. We’ll return to this later.

In another press release on the same day (no 20/105), IMF confirmed approval of three-year arrangements for Somalia (under the ECF & EFF), qualifying for funds totaling “about US$395.5 million” over the 3-year period in the run-up to HIPC completion point

imf.org/en/News/Articl…

This must confuse @DrBeileh, considering he told Reuters in October last year that “Somalia is negotiating to receive grants worth about $300 million per year for the next three years.” I repeat, "next three years," not post completion!

uk.reuters.com/article/uk-imf…

A devil’s advocate might interject ‘but… but $132 million a year is better than nothing’! Sure, it is. But if you contextualise, that amounts equates to 8.3% of total ODA in 2018 alone! And yet, there’re no rivers of honey & milk flowing in the ever elusive "paradiso Mogadiscio"

@DRBeileh might dismiss these as humanitarian, but we reject this on 2 accounts; 1)roughly 20% of 2018 ODA does pertain to the development agenda as constantly purported by @SomaliPM himself; and 2)even a 20% is still equivalent to $316 million (2.4x the celebrated $132 million!)

Nevertheless, all of this is mute anyway as the ECF & EFF proceeds were used to repay the IMF bridge loan. Encircled part is to alert against proceeding sentence (blink and you’ll miss). Difference b/w the nominal debt ($335.1m) & the bridging loan ($395.5m) must be explained!

This difference is actually $60.4 million, which is 18% of the arrears stock in IMF books. So where did it go? Could it be the very, very, very import administrative cost recovery IMF spokesman Gerry Rice was talking about? Never knew this business was that lucrative!

Here’s a small detail on the least publicised nasty little sting, shedding light on the whole bridging exercise ops involving the 3 multilaterals of IMF, WB & AfDB. It may come with a restructuring package which includes no payments in the first initial couple of years, but still

Let’s go back to the Paris Club creditors for a moment. Their press release dated March 31, 2020 has been quite intriguing to say the least. Here’re some peculiarities (limiting to select examples given their boring nature) that I feel people ought to know
clubdeparis.org/en/communicati…

-1st of all, it’s true that $1.4b has been written off from the debt owed by Somalia

-it’s also true that there’re many strings attached, and failing to comply may impact subsequent cancellations (hence the process of piecemeal incrementalism)

So, what do these strings include?

-for instance, Somalia doesn’t have to make payments for at least until 31st March 2020 “provided that it continues to implement satisfactorily an IMF supported program”

-this also includes a moratorium on interest payments due on Paris Club creditor claims expected from Somalia

-instead, such “resources that otherwise would have gone to Paris Club creditors” (conditionally forfeited remember!) must go to what’s identified as “priority investments”

-for now, it’s aligned with the National Development Plan (NDP-9), though subject to discretionary whims!

Another peculiar claim is that total debt stock owed to Paris Club creditors + participating non-Paris Club creditors “was estimated to be more than US$ 3.0 billion.”

Why estimate? Because no one knows? Allow me to speculate using a simple inferences based on their information

There were only 3 named participating non-Paris Club creditors at the meeting; Kuwait, Saudi Arabia & UAE, and adding their claims ($466m) to Paris Club creditors’ would give $3.5b. But total Paris Club arrangement is only for $2.7b (leaving mystery $345m to be accounted for).

Remember the magic untouchable $557m imbedded in the HIPC programme (an irremissibly inexpiable amount that will have to remain at completion point) which is expected that #Somalia pays in full? Does the mystery $345m count towards the magic $557m? It’s definitely not post-cutoff

It so transpires that, in order “to protect credits granted by Paris Club creditors after” the arbitrary cut-off date of October 1984, such credits are “not subject to rescheduling or cancellation.” Only by sheer benevolence, we’re led to believe, were these deferred until 2024

If total stock owed to Paris Club AND non-Paris Club in 1984 was $742m, with the vast majority owed to Soviet Union, the Arab Gulf countries & Iraq, while explicit debt restructuring figures exclusive to Paris Club has always been much lower ($132m at its peak), then what gives?

Our good minister was full of self-aggrandising rhetoric in not acknowledging any claim. We’d feel much more at ease if he disclosed agreed minutes with entries next to Somalia demonstrating alleged epic heroics. Objections from other bilateral creditors shouldn't count as yours.

Enough about the past. Let’s focus on the future & the potentially disastrous dangers awaiting the country. First main aspect that requires extra vigilance is future borrowing. Intention of this admin, and PM’s core pursuance, seems to solely focus on unleashing the pandora’s box

The bad credit @SomaliPM refers to here, is the sovereign credit rating which is something that’s only relevant when assessing a country’s creditworthiness if it wants to borrow in the capital markets, from bilateral creditors or multilateral agencies. Otherwise, it’s meaningless

Once IMF/WB’s limits of concessional lending has been exhausted, they’d be forced to consider Somalia’s debt vulnerabilities and its capacity to carry debt level trajectories before contracting of new ones. Such quantitative studies are likely to result in a negative advice.

Therefore, these multilaterals have rating tables of their own classifying countries into groups which they share with all OECD members. So, most responsible bilateral countries won’t entertain willy-nilly lending. And here’s where the dangerous temptations manifest themselves!!!

Unfortunately, there’re predatory lenders who offer loans to countries willing to collateralise their most priced possessions, not to mention debt-trap diplomacy which might see the country lose ownership of its resources. I hope everyone who cares about #Somalia understands this

Another immediate problem is the fact that Somalia in in no position to fully extract all potential benefits from any kind of capital injection, as this heavily depend on the overall economic and political conditions of the country. Sadly, these conditions are being ignored.

END