Enhanced Heavily-Indebted Poor Countries (HIPC) Initiative-Preliminary Document

Abstract

Enhanced Heavily-Indebted Poor Countries (HIPC) Initiative-Preliminary Document

Introduction

1. This paper presents a preliminary assessment of the eligibility of the Federal Government of Somalia (hereafter “Somalia” or “FGS”) for assistance under the Enhanced Heavily Indebted Poor Countries (HIPC) Initiative.2,3 The assessment is based on a joint HIPC debt relief analysis (DRA)4 conducted by IMF and IDA staffs and the Somali authorities, following data reconciliation missions to Addis Ababa, Ethiopia, in August 2019.

2. The DRA reveals that Somalia’s debt burden expressed as net present value (NPV) of debt-to-exports ratio, after traditional debt relief mechanisms are applied, is 328.9 percent at the end of December 2018—significantly above the HIPC Initiative threshold.5 Possible HIPC debt relief at the end of December 2018 is estimated at US$1.9 billion in NPV terms, with a common reduction factor (CRF) of 54.4 percent. Debt relief under the HIPC Initiative and the Multilateral Debt Relief Initiative (MDRI) would help accelerate progress toward the Sustainable Development Goals (SDG).

3. This paper is organized as follows. Section II provides background information on Somalia’s eligibility for assistance under the HIPC Initiative, including the country’s recent progress in the political and economic areas, and governance. Section III discusses the country’s medium- to long-term macroeconomic framework and its poverty reduction strategy. Section IV summarizes the DRA and presents the magnitude of HIPC assistance likely to accrue to the country, including through arrears clearance. Section V outlines reforms that will serve as Completion Point triggers. Section VI presents issues for discussion by Executive Directors.

Background and Eligibility for HIPC Initiative Assistance

A. PRGT and IDA Status

4. Somalia is eligible for support from the IMF under the Poverty Reduction and Growth Trust and is an IDA-only country.

5. Somalia has demonstrated sustained commitment to implementing economic and financial reforms in the context of three consecutive Staff-Monitored Programs (SMPs). Satisfactory performance has been maintained under the fourth SMP, which was endorsed by IMF Executive Directors in May 2019 as meeting the standards of an Upper Credit Tranche arrangement. IMF members are mobilizing the financing resources to help clear Somalia’s arrears and finance the IMF’s costs of HIPC and beyond HIPC debt relief for Somalia, which are estimated at SDR 131.1 million (equivalent to US$182.3 million) and SDR 109.9 million (equivalent to US$153 million) in end-2018 NPV terms, respectively. This means Somalia could gain access to a new Fund-supported financing arrangement and reach the Decision Point under the HIPC Initiative in the near future. The expected Extended Credit Facility (ECF) and Extended Fund Facility (EFF) supported program will aim to support sustained growth, and further strengthen fiscal and financial institutions, and will draw on the priorities outlined in Somalia’s Ninth National Development Plan (NDP9).

6. The World Bank Group’s Country Partnership Framework (CPF) for Somalia (FY19– FY22) was developed with the objective of positioning Somalia for the HIPC process.6 The CPF focuses on strengthening Somali institutions to deliver services and on restoring economic resilience and opportunities. It builds on a record of steadily improving country performance achieved under the 2013 Interim Strategy Note, which was supported by the Multi-Partner Fund.7 The current CPF initiated IDA financing to Somalia for the first time since 1991 through exceptional pre-arrears clearance grants (PACGs) of US$140 million per year in FY19 and FY20.8 The proposed Reengagement and Reform Development Policy Grant (DPG) would facilitate Somalia’s arrears clearance, estimated to reach around US$357 million by end-February 2020, and full normalization of relations with IDA. . Funds from the IDA arrears clearance set-aside would be used to finance the reengagement grant. In addition, the proposed DPG would disburse US$45 million directly to Somalia as budget support. In anticipation of arrears clearance and the HIPC Decision Point, staff are seeking funds from the IDA18 Turnaround Regime for the remainder of FY20 and an IDA19 Turnaround Allocation for FY21–FY23.

B. Background, and Political and Poverty Developments

7. Somalia has an historic opportunity to turn the page on decades of conflict, fragility and state fragmentation, and embark on a trajectory towards poverty reduction and inclusive growth. For over two decades, Somalia has experienced protracted conflict and fragility, the collapse of rule of law, institutions, basic public services and the social contract, resulting in the impoverishment of millions. Starting in the early 2000’s Somalia has seen multiple (often flawed, failed or externally driven) attempts to broker peace among factions and establish a sustainable governance framework that provides the basis for stability and development. The breakthrough 2012 Provisional Constitution established a federal political structure, including a parliament, the Federal Government of Somalia (FGS) and the Federal Member States (FMSs). Meanwhile, African Union forces liberated the capital Mogadishu and other key strategic cities from Al Shabab. Since that time, the country has succeeded in rebuilding core state capabilities. Although much remains to be done to stabilize the country and secure lasting political settlement, the sustained political, economic and institutional reforms undertaken since 2016 supported by IMF Staff-Monitored Programs (SMPs), EU and World Bank financing, and extensive technical assistance, have succeeded in rebuilding core state capabilities.

8. Poverty remains pervasive in Somalia. Almost 70 percent of Somalis live on less than US$1.90 a day in purchasing power parity terms (Table 1), and economic growth lags behind population growth, estimated at 2.8 percent per year.9 Poverty incidence is almost uniformly high in Somalia— poverty rates in Mogadishu, rural areas, internally displaced populations (IDPs) and nomads are all higher than the national average. The only exception is urban areas other than Mogadishu where the poverty rate is around 10 percentage points lower than the national average, possibly reflecting smaller concentrations of IDPs and, in some cities, less exposure to conflict. Poverty is deep particularly in rural populations and IDPs. The average distance to the poverty line for the poor in these two groups is more than one third of the poverty line.

Table 1.

Key Poverty and Social Indicators

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Sources: *Somali Poverty and Vulnerability Assessment; ** Authors’ estimation using HFS2017; *** WDI.

9. In addition to monetary poverty, most Somali households suffer non-monetary deprivations as well. Almost nine of 10 Somali households are deprived in at least one dimension of poverty—monetary, electricity, education, or water and sanitation—and nearly seven of 10 households suffer in two or more dimensions. In addition, a significant group of non-poor are vulnerable to falling into poverty. About one third of the non-poor is within 20 percent from the poverty line.

10. Somali cities tend to have lower monetary poverty and better services than rural areas. The only exception is Mogadishu, where, as discussed above, poverty is higher than the national average. In contrast, many other cities have not had to cope with constant and large influxes of IDPs. Cities consistently provide better access to services—except for land and housing—and more stable income than rural areas. Despite better conditions in cities, however, they still struggle with hunger, high absolute poverty of 64 percent, nonmonetary poverty of 41 percent, and ensuring universal access to services. There is also some regional disparity in the provision of services, with Mogadishu and North East and North West cities providing better access to services compared to Baidoa, Kismayo, and central urban areas.

11. Women and youth face particular challenges. Women across all population groups have lower literacy and educational attainment. An estimated 74 percent of youth are unemployed, which contributes to the underlying drivers of fragility, as spoiler groups such as Al-Shabab exploit constrained economic opportunities. This situation stresses the urgency of continued support to economic reforms that will promote inclusive growth and meaningful jobs for women and the youth.

12. Somali households are especially vulnerable to shocks, including natural disasters and epidemics, as well as to household-level shocks such as injury, death, or unemployment. Successive droughts and heavy rains—such as the severe drought in 2017 and 2019 —have taken a large toll on the country, aggravating the humanitarian challenges. Poorer households are more likely to experience more than one type of shock. The impact of shocks is magnified when a household experiences several shocks simultaneously. The persistent cycle of shocks increases Somalis’ vulnerability to future shocks as there is limited public and private insurance and access to finance. The authorities are taking steps to reduce Somalia’s exposure to shocks and reduce their impact, including through development of a social registry (a proposed Completion Point trigger), which will improve delivery of post-disaster assistance.10

C. Post-Conflict Macroeconomic and Structural Reform Track Record

13. Despite the challenging environment, progress on reform and policy implementation has been good (Figure 1). Somalia has successfully completed three successive IMF SMPs, and sustained satisfactory performance under the current fourth SMP, further catalyzing donor support and improving confidence.

Figure 1.
Figure 1.

Progress on Economic Policy Reforms1/

Citation: IMF Staff Country Reports 2020, 044; 10.5089/9781513530208.002.A001

1/ The World Bank’s Recurrent Cost and Reform Financing projects (RCRF) have been financed from the Multi-Partner Fund and IDA pre-arrears clearance grants.

14. In addition to the coordinated support from the Bank and Fund, other development partners and creditors are intensively engaged with Somalia.11 The African Development Bank (AfDB) has provided pre-arrears clearance grants and is expected to mobilize project-financing up to about US$86 million in 2020 (based on end-2019 exchange rate). The UK Department for International Development (DFID) has been actively supporting efforts to improve governance and strengthen institutions, particularly on public financial management (PFM) and customs modernization. The EU has an ongoing budget support program that focuses on domestic revenue mobilization, PFM, intergovernmental fiscal relations, law enforcement, and education. Broader support from the international community is anchored by the Somalia Partnership Forum and associated Mutual Accountability Framework.12

15. With the support of the international community, the authorities’ strong commitment to reforms and policy implementation are bearing fruit:

  • Budget preparation and execution, and PFM. Progress on budgeting and PFM are rapidly improving budget credibility and the fiscal framework. In 2015, the authorities established the offices of accountant general and auditor general to underpin financial governance. Accounting and reporting operations have improved with the implementation of the Somalia Financial Management Information System (SFMIS) in 2017, while PFM procedures and practices have been institutionalized across the government. In 2018–19, significant progress was made on cash, arrears, and treasury management.

  • Revenue. The significant increase in domestic revenue has been underpinned by reforms such as the introduction of sales tax, excise taxes on imported goods, and the establishment of a large-and-medium-taxpayers’ office.

  • Fiscal federalism. The authorities established the Intergovernmental Fiscal Forum (IGFF) in 2018, comprising Finance Ministers of the FGS and FMS, with the objective of developing a fiscal federalism model, and to help harmonize budget processes, PFM, accounting frameworks, and taxes. Under the IGFF, FGS and FMS have agreed on plans for the sharing of revenues, including those from natural resources and fisheries.

  • Monetary and financial reforms. The CBS is in the process of establishing a more modern organizational structure, including strengthening its accounting, audit and governance processes. In addition, there has been significant progress in strengthening financial sector supervision, including deepening the licensing and inspections processes, and, more recently, by the extension of oversight to mobile money services providers. A financial sector roadmap has been developed to guide future progress.

  • Important steps have been taken to strengthen the AML/CFT regime since 2015. In response to the withdrawal of correspondent banking relationship, the authorities launched a multi-agency task force and an advisory council to facilitate remittances. In 2017, they established a Financial Reporting Center to contribute to the protection of Somalia’s financial system and banks and money-transfer businesses are submitting large and suspicious transactions reports. To comply with the AML/CFT framework, they enacted a new AML/CFT Law and have issued AML/CFT regulations that apply to all financial institutions.

  • Economic and financial data. Efforts to rebuild statistical institutions are proceeding. In 2017, the authorities established the Somali National Bureau of Statistics and submitted the Statistical Law to Parliament. They began producing and publishing comprehensive monthly CPI data and reports in 2018. Progress is being made toward improving key macroeconomic statistics, including consumer prices, balance of payments, public debt, and national accounts.

  • The authorities have made significant strides in improving governance and adopting measures aimed at mitigating the risk of corruption. Reforms implemented under consecutive SMPs have contributed to these efforts, including in the areas of public financial management (PFM), central bank governance and organization, financial regulation and supervision, and AML/CFT. Second, fiscal transparency has improved with Somalia now participating in the Open Budget Survey, publication of monthly revenue and expenditure reports, and the release of the audit report for 2018. In addition, a new Anti-Corruption Act was enacted in October 2019. These efforts will need to be sustained and deepened to reduce the perception of widespread corruption.

16. Reforms have translated into economic results. Although agriculture continues to be hit by adverse weather conditions, economic activity has been supported by strong activity in the telecom, trade, construction, and financial sectors, with GDP growth estimated at 2.8–2.9 percent in 2018–19.13 While inflation eased to 3.2 percent in 2018, further climate shocks in 2019 has seen it increase again to 4.0 percent in 2019, though still down from 6.1 percent in 2017. The trade deficit remains large, but it is largely financed by official grants and remittances. Within the context of consecutive IMF SMPs, domestic revenue mobilization has been strong—increasing by over 70 percent since 2016 reflecting improvements in tax administration and new tax measures. At the same time, expenditures have been kept in check and there has been no domestic arrears accumulation since 2016.

17. Although progress has been significant, further work remains in all of these areas. Critical work will continue in fiscal federalism, fiscal policy and management, data and statistics, monetary policy, financial sector regulation, and governance and anti-corruption in the years ahead, including within the framework of future IMF programs and WB operations.

Medium-to Long-Term Strategy and Prospects

A. Macroeconomic Outlook

18. Growth is expected to become more resilient on the back of broad-based reforms and increased access to resources for development spending on reaching the Decision Point. Overall, growth is expected to gradually accelerate to a peak of close to 5.5 percent by 2027, before settling to a long-term average of around 4.8 percent. This would imply a long-run growth rate about 1.3 percentage points higher relative to a scenario without debt relief,14 with per-capita growth to reach about 2 percent over the long-run. The growth outlook will be supported by higher consumption and increased contributions of export and investment. Although exports are expected to grow in line with broader economic activity, the trade deficit will remain large as imports pick-up to support growth, with an expected shift in composition from food to investment goods as investment in resilience improves food security. Over the short to medium term, the trade deficit will be financed by higher grants and remittances. However, over the longer-term, grants are expected to decline and be gradually replaced with concessional debt and greater flow of foreign direct investment (FDI) as the business environment improves. Inflation is projected to remain broadly stable at below 3 percent, in line with international prices.

19. The fiscal resource envelope will increase to reflect higher aid and domestic revenue mobilization over the medium-term. Expenditure will remain in check, and cash management and expenditure control are expected to improve and there will be no new domestic arrears.

20. Risks to the outlook are significant and reflect the drivers of Somalia’s fragility—weak security, political tensions, and vulnerability to climate shocks. 15 However, these risks are mitigated by strong international support, together with the authorities’ drive to build resilience, and enhance political dialogue. In addition, the authorities’ demonstrated capacity of implementing difficult reforms in the context of four successive SMPs mitigates overall risks to program implementation.

B. The Interim Poverty Reduction Strategy

21. On September 26, 2019, the Cabinet approved a new NDP covering 2020–24. NDP9 is a comprehensive and nationally owned strategy for poverty reduction and inclusive growth that builds on the progress under NDP8, which covered 2017–19. The strategy is informed by a detailed analysis of the drivers of poverty, which include political fragility, conflict, insecurity and lawlessness, and climatic shocks.

22. NDP9 was developed through a highly consultative, participatory process that has helped ensure full country ownership. The authorities held a series of public consultative meetings with civil society, private sector representatives, FGS and FMS ministries, national and state parliamentarians, members of the judiciary, and development partners. The resulting document transparently incorporates input received during consultation rounds.

23. The strategic interventions of NDP9 focus on four pillars: (1) Inclusive and Accountable Politics; (2) Improved Security and the Rule of Law; (3) Inclusive Economic Growth (including increased employment); and (4) Improved Social Development. Considering the country’s fragility and the challenges to deal with security, climate shocks and federalism, each pillar integrates six critical cross-cutting policy priorities to achieve the development goals set forth in the NPD9, notably (i) gender, human rights and other kinds of social equity; (ii) resilience of households, communities and the government; (iii) Somalia’s environment and its natural resources; (iv) durable solutions to long term displacement; (v) interface between humanitarian and development planning; and (vi) governance. In particular, NDP9 presents a comprehensive strategy to reduce poverty.

24. The NDP9 includes an implementation arrangement framework with associated risks and strategy to fill large data gaps. The implementation approach of NPD9 is based on three guiding principles—multi-dimensional, preserving national ownership, and demonstrating progress against one or more NPD9 indicators.

25. The authorities submitted NDP9 to IDA and the IMF on October 15, 2019, to fulfill the HIPC Initiative’s poverty reduction strategy requirement. Staff are currently preparing the Joint Staff Advisory Note on NDP9.

Debt Relief and Possible HIPC and MDRI Assistance

A. Debt Reconciliation Status

26. The preliminary DRA below is based on a provisional reconciliation of public and publicly-guaranteed external debt data at end-2018 provided by the authorities and creditors.16 The reconciliation process was completed jointly by the IMF, World Bank, and the authorities in July 2019. Information provided by the authorities on multilateral and official bilateral debt was reconciled close to 100 percent with creditor data.17 According to the information provided by Somalia’s authorities, no commercial debt is outstanding.

B. Structure of External Debt

27. At end-2018, the public and publicly guaranteed external debt of the FGS was estimated at US$5.3 billion, in nominal terms (Table 2). This corresponds to US$5.2 billion in net present value (NPV) terms. Multilateral creditors account for 28.9 percent of the total debt stock in nominal terms, with liabilities to IDA, IMF and the AfDB constituting 18.5 percent of total external debt. Other multilaterals with substantial claims on Somalia are the AMF (5.4 percent), and AFESD (3.5 percent). IFAD, OFID and IsDB hold claims amounting to a combined share of 1.5 percent of total debt. Paris Club creditors, with the United States, Russia, and Italy as the major creditors, account for 57.9 percent of total nominal debt at end-2018. Non-Paris Club official creditors are Algeria, Bulgaria, Iraq, Kuwait Fund for Arab Economic Development, Libya, Romania, Saudi Fund for Development, Serbia, and United Arab Emirates, accounting for an estimated 13.2 percent of total external debt.18

Table 2.

Nominal Stocks and Net Present Value of Debt by Creditor Groups

(as of end-2018)

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Sources: Federal Government of Somalia (FGS) authorities and staff estimates and projections.

Includes arrears.

Discount rates applied are the average Commercial Interest Reference Rates published by the OECD over the 6-month period prior to December 2018. The discount rate for the SDR is calculated using the CIRR published by the OECD for all SDR basket currencies except the Chinese yuan. The OECD does not publish a CIRR for the Chinese yuan, therefore it is calculated based on the Chinabond yield curve for bonds with a 7-year maturity increased by 100 basis point, per the standard CIRR methodology. This amounted to 4.5 percent for the 6-month period prior to December 2018.

Assumes a stock-of-debt operation on Naples terms at end-December 2018; and comparable action by other official bilateral creditors on eligible debt (pre-cutoff and non-ODA).

Other multilaterals include AFESD, IFAD, IsDB, and OFID.

Paris Club cutoff date is October 1, 1984.

28. As of end-2018, about 95.8 percent of Somalia’s external debt was in arrears. The stock of external arrears stood at US$5.0 billion, of which US$1.3 billion was owed to multilateral creditors and US$3.7 billion to bilateral claimants. Arrears to the World Bank and the U.S. made up the largest share of arrears to multilateral and bilateral creditors, respectively, as of end-2018.

C. Possible Assistance Under the HIPC Initiative

29. Somalia would qualify for debt relief under the HIPC Initiative’s “export window” based on end-2018 data, i.e., its NPV of debt-to-exports ratio exceeds the benchmark of 150 percent.19 After full application of traditional debt relief mechanisms, the country’s NPV of debt is estimated at US$3.5 billion at end-2018, equivalent to 328.9 percent of exports of goods and services.20

30. The amount of additional debt relief needed to bring Somalia’s NPV of debt-to-exports ratio down to the HIPC threshold of 150 percent is estimated at US$1.9 billion in end-2018 NPV terms. This implies a common reduction factor (CRF) of 54.4 percent. Based on proportional burden sharing, multilateral creditors’ assistance would amount to US$0.8 billion, and bilateral and commercial creditors’ assistance to US$1.1 billion (in NPV terms) (Table 3, Figure 3).

Table 3.

HIPC Initiative Assistance under a Proportional Burden Sharing Approach

(in millions of US$, unless otherwise indicated)

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Sources: Federal Government of Somalia (FGS) authorities and staff estimates and projections.

Assumes a stock-of-debt operation on Naples terms at end-December 2018; and com parable action by other official bilateral creditors on eligible debt (pre-cutoff and non-ODA).

Three-year historical average of exports of goods and non-factor services (years of 2016–2018).

Figure 2.
Figure 2.

Composition of Stock of External Debt at End- 2018 by Creditor Group

Citation: IMF Staff Country Reports 2020, 044; 10.5089/9781513530208.002.A001

Sources: Federal Government of Somalia (FGS) authorities and staff estimates and projections.
Figure 3.
Figure 3.

Somalia: Potential Costs of the HlPC Initiative by Creditor 1/

Citation: IMF Staff Country Reports 2020, 044; 10.5089/9781513530208.002.A001

Sources: Federal Government of Somalia (FGS) authorities and staff estimates and projections.1/ Excluding the costs of the delivery of traditional debt relief by bilateral creditors.

31. The illustrative scenarios below on the delivery of HIPC Initiative debt relief assume Somalia reaches the Decision Point in March 2020 and its Completion Point by March 2023 (Figure 3).21

  • IDA assistance under the HIPC Initiative and the MDRI would amount to US$439.8 million in end-2018 NPV terms, which is equivalent to a reduction of 91.8 percent of the NPV of debt to IDA at end-2018.22 It is expected the IDA would deliver 71.2 percent of this relief through the concessional element of an arrears clearance operation to be concluded ahead of the Decision Point and entirely financed with grants.23 Through the clearance of arrears, IDA would have delivered its full share of HIPC debt relief and would not provide additional HIPC debt relief through debt service reduction after the approval of the Decision Point, based on the estimated share of IDA debt relief. The details of IDA’s end-2018 anticipated assistance in nominal values are provided in Table 10. The remaining relief would be provided through MDRI relief at Completion Point.

  • IMF HIPC assistance would amount to US$182.3 million in end-2018 NPV terms, of which US$9.8 million would represent the cost of the subsidization of PRGT interest24 After the Decision Point is approved by the Boards of the IMF and World Bank, it is expected that the IMF would provide HIPC interim assistance on IMF-related obligations falling due prior to Somalia reaching the Completion Point, subject to Somalia maintaining satisfactory progress under the ECF arrangement. These obligations would mainly include GRA charges related to credit outstanding on the EFF arrangement. However, a portion of these obligations would relate to charges due on Somalia’s pre-Decision Point arrears to the Fund that would not become due until after the Decision Point (Table 11).25

  • AfDB Group’s assistance would amount to US$72.9 million in end-2018 NPV terms and would be entirely delivered through an arrears clearance operation.

  • Other multilateral creditors’ assistance would amount to US$297.2 million in end-2018 NPV terms based on the CRF. Creditors are assumed to provide debt relief through cancellation or concessional rescheduling of arrears, to commence at Completion Point.

  • Paris Club creditors are assumed to provide their share of HIPC debt relief through a Cologne flow operation (i.e., a 90 percent NPV reduction on non-ODA debt and a 100 percent rescheduling on highly concessional terms on ODA debt) after Somalia reaches its Decision Point,26 with the remaining HIPC assistance delivered through a stock of debt operation at the Completion Point. The HIPC assistance is estimated at US$816.56 million in end-2018 NPV terms.

  • Regarding the non-Paris Club official bilateral creditors, the authorities have already approached and secured a preliminary offer of debt relief from some key creditors; it is expected that Somalia will approach the full set of non-Paris Club bilateral creditors to request comparable terms to those provided by the Paris Club members once those terms have been confirmed.27 The HIPC assistance allocated to these creditors is estimated at US$275.2 million in end-2018 NPV terms.

Table 4.

Nominal Stock and Net Present Value of Debt as of end December 2018, by Creditor Groups

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Sources: Federal Government of Somalia (FGS) authorities and staff estimates and projections.

Includes Arrears

Discount rates applied are the average Commercial Interest Reference Rates published by the OECD over the 6-month period prior to December 2018. The discount rate for the SDR is calculated using the CIRR published by the OECD for all SDR basket currencies except the Chinese yuan. The OECD does not publish a CIRR for the Chinese yuan, therefore it is calculated based on the Chinabond yield curve for bonds with a 7-year maturity increased by 100 basis point, per the standard CIRR methodology. This amounted to 4.5 percent for the 6-month period prior to December 2018.

Assumes a stock-of-debt operation on Naples terms at end-December 2018; and comparable action by other official bilateral creditors on eligible debt (pre-cutoff and non-ODA).

Paris Club cutoff date is October 1, 1984.

Special Action Credits (SAC) provided by the European Economic Community (EEC) member states according to the 21/12/1978 Council decision bilateral loans for which IDA acts as administrative agent. As of November 1, 2005, all Paris Club SAC creditors (Belgium, Denmark, Germany, France, The Netherlands and the United-Kingdom) have decided to classify these credits as bilateral creditor loans and cancel their them at Completion

Table 5.

Discount and Exchange Rate Assumptions as of end-December 2018

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Sources: OECD; and IMF, International Financial Statistics.

The exchange rates are expressed as national currency per U.S. dollar at end-December 2018.

Discount rates applied are the average Commercial Interest Reference Rates published by the OECD over the 6-month period prior to December 2018. The discount rate for the SDR is calculated using the CIRR published by the OECD for all SDR basket currencies except the Chinese yuan. The OECD does not publish a CIRR for the Chinese yuan, therefore it is calculated based on the China bond yield curve for bonds with a 7-year maturity increased by 100 basis point, per the standard CIRR methodology. This amounted to 4.5 percent for the for the 6-month period prior to December 2018.

Per the data provided by Russia, the amounts of indebtedness denominated in Soviet rubles are converted into US dollars at the official Gosbank USSR exchange rate of 0.6 Soviet ruble per 1 US dollar. This is consistent with the past HIPC cases.

The IsDB, AfDB Group and AMF use the Islamic dinar (ISD), African currency unit (UAC) and Arab accounting dinar (AAD) respectively, which are all linked to the SDR (ISD 1=UAC 1=AAD 3=SDR 1) and use the same discount rate as the SDR.

Table 6.

External Debt Service, 2019–38 1/

(In millions of U.S. dollars, unless otherwise indicated)

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Sources: Federal Government of Somalia (FGS) authorities and staff estimates and projections.

All external debt statistics correspond to public and publicly guaranteed debt.

Includes only scheduled debt service on current maturities and does not include projected penalty interest on arrears.

Other multilaterals include AFESD, AMF, IFAD, IsDB, and OFID.

The projected debt service is based on PRGT/GRA arrangements in the amount equal to the stock of arrears at arrears clearance, plus a new PRGT credit of 30 percent of quota under the 14th General Review which will be disbursed in 7 installments. Interest obligations do not include net SDR charges and assessments.

Reflects debt service on the projected borrowing needed to close the fiscal gap which assumes lending from IDA and new PRGT borrowing above that required for IMF arrears clearance.

Shows the external debt situation after the full use of traditional debt-relief mechanisms (hypothetical stock-of-debt operations on Naples terms) by Paris Club creditors that includes treatment of debt stock in arrears, and assumes at least comparable treatment from other official bilateral creditors.

Paris Club and other official bilateral creditors are assumed to provide a Cologne flow rescheduling on eligible debt during interim period ‘and the remaining of their share of relief after of the completion point (i.e. in January 2023) through stock-of-debt reduction. Multilateral creditors start delivering HIPC assistance through the arrears clearance process. This starts at January 2023 for the IMF, World Bank and the AfDB. Other multilaterals are assumed to clear their arrears (as at the completion point date of end-December 2022).

Includes beyond-HIPC assistance to the remaining outstanding debt stock associated with the arrears clearance. The IM F does not have outstanding MDRI-eligible debt. The last of the MDRI-eligible debt was repaid in FY2014, and the MDRI Trusts were liquidated in 2015.

Paris Club creditors deliver, through voluntarily bilateral initiatives, additional debt relief beyond the HIPC Initiative after the completion point (assumed to be delivered in January 2023). Details on the modalities of the delivery are presented in Table A10.

Exports of goods as defined in IMF, Balance of Payments Manual, [6th edition, 2009]. Refers to fiscal year exports.

Revenues are defined as central government revenues, excluding grants.

Table 7.

Net Present Value of External Debt, 2018–38 1/

(In millions of U.S. dollars, unless otherwise indicated)

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Sources: Federal Government of Somalia (FGS) authorities and staff estimates and projections.

All NPV debt stocks refer to public and publicly guaranteed debt at end-December 2018.

Other multilaterals include AFESD, AMF, IFAD, IsDB, and OFID.

Shows the external debt situation after the full use of traditional debt-relief mechanisms (hypothetical stock-of-debt operations on Naples terms) by Paris Club creditors that includes treatment of debt stock in arrears, and assumes at least comparable treatment from other official bilateral creditors.

Paris Club and other official bilateral creditors are assumed to provide a Cologne flow rescheduling on eligible debt during interim period and the remaining of their share of relief after of the completion point (i.e. in January 2023) through stock-of-debt reduction. Multilateral creditors start delivering HIPC assistance through the arrears clearance process. This starts at January 2023 for the IMF, World Bank and the AfDB. For the IMF, it includes beyond-HIPC assistance to the remaining o stock associated with the arrears clearance. Other multilaterals are assumed to clear their arrears (as at the completion point date of end-December 2022).

Unconditional delivery of HIPC assistance assumes full delivery of estimated enhanced HIPC Initiative debt relief as of end-June 2018, while conditional delivery of HIPC assistance assumes that the full delivery of HIPC assistance will only be considered after the expected completion point. Therefore, the NPV of debt under the conditional scenario is higher than under the unconditional scenario during the interim period.

Includes beyond-HIPC assistance to the remaining outstanding debt stock associated with the arrears clearance. The IMF does not have outstanding MDRI-eligible debt. The last of the MDRI-eligible debt was repaid in FY2014, and the MDRI Trusts were liquidated in 2015.

Paris Club creditors deliver, through voluntarily bilateral initiatives, additional debt relief beyond the HIPC Initiative after the completion point (assumed to be delivered in Janaury 2023). Details on the modalities of the delivery are presented in Table A10.