The In­ter­na­tional Mon­e­tary Fund says cred­i­tors may for­give part of So­ma­li­a’s out­stand­ing $5.3 bil­lion debt if the strife-torn Horn of Africa state takes con­crete steps to­ward re­form­ing its econ­omy and im­prov­ing gov­er­nance.

So­ma­lia, gripped by a three-decade civil war, would have to first clear ar­rears owed to the IMF, the World Bank and the African De­vel­op­ment Bank, ac­cord­ing to IM­F’s coun­try head Samba Thiam. An ar­rears-clear­ance plan, a new cur­rency, an ef­fec­tive mon­e­tary pol­icy and a “solid track record” on good gov­er­nance may lead to fresh fund­ing, Thiam said in an in­ter­view Feb. 17 in Nairobi, the cap­i­tal of neigh­bor­ing Kenya.

“There is a gen­eral will­ing­ness from cred­i­tors to write off So­ma­li­a’s debt when the time comes, it’s a good prospect,” Thiam said. “They are not pay­ing debt now, they will not be asked to pay to­mor­row, so they have time to work on con­sol­i­dat­ing their eco­nomic base. The debt is an is­sue that will be re­solved some time.”

So­ma­lia is one of the last na­tions to qual­ify for debt re­lief un­der a World Bank and IMF ini­tia­tive known as Heav­ily In­debted Poor Coun­tries, Thiam said.

A civil war and sub­se­quent Is­lamist-mil­i­tant in­sur­gency have de­stroyed much of So­ma­li­a’s po­lit­i­cal and eco­nomic in­sti­tu­tions over the past quar­ter of a cen­tury, with in­come per capita of $435 mak­ing it the world’s fifth-poor­est na­tion, ac­cord­ing to the World Bank. Agri­cul­ture ac­counts for 40 per­cent of na­tional out­put in the coun­try whose main ex­port is camels to Gulf Arab coun­tries. Eco­nomic growth may slow to 2.5 per­cent in 2017 from 3.7 per­cent last year, the IMF es­ti­mates.

New Ban­knotes

The IMF is back­ing the rein­tro­duc­tion of new So­mali-shilling notes that may come into cir­cu­la­tion this year along­side the dol­lar, which has been the main means of pay­ment.

“About 98 per­cent of the cur­rency cir­cu­lat­ing in the coun­try is fake,” Thiam said. “The re­main­ing 2 per­cent is cur­rency printed dur­ing 1990-91, still cir­cu­lat­ing, but in very bad shape.”

The print­ing of new notes, which will ini­tially be in small de­nom­i­na­tions, is aimed at restor­ing the Cen­tral Bank of So­ma­li­a’s pow­ers to set mon­e­tary pol­icy, Thiam said. While the in­sti­tu­tion does­n’t have the money to fi­nance the plan, donors will back the re­forms and fi­nanc­ing will be agreed on once the gov­ern­ment de­cides whether it wants a float­ing- or fixed-rate cur­rency regime.

The IMF is also as­sist­ing the cen­tral bank with reg­u­la­tion and su­per­vi­sion of the fi­nan­cial sec­tor to open it to new in­vestors, Thiam said. KCB Group Ltd. and Com­mer­cial Bank of Africa Ltd., neigh­bor­ing Kenya’s biggest and sixth-largest banks by as­sets, are among lenders that have ap­plied to set up shop. So­ma­lia has six banks and 12 money-trans­fer busi­nesses.

Bet­ter Gov­er­nance

So­ma­lis liv­ing abroad have buoyed the econ­omy with re­mit­tances of as much as $2.3 bil­lion a year, Thiam said. “We pretty much think the amount that could be go­ing un­no­ticed, un­de­clared must be much big­ger,” he said.

So­ma­li­a’s Pres­i­dent, Mo­hamed Ab­dul­lahi, elected into of­fice this month, must make good on his word to fight graft, Thiam said. So­ma­lia is the world’s most cor­rupt na­tion, ac­cord­ing to Berlin-based Trans­parency In­ter­na­tional.

The pres­i­dent pop­u­larly known as Far­majo faces “for­mi­da­ble ob­sta­cles” such as tack­ling the al-Qaeda-linked mil­i­tant group al-Shabaab and cor­rup­tion within gov­ern­ment ranks, BMI Re­search said Mon­day in an e-mailed note. Al-Shabaab’s “in­flu­ence could con­tinue to re­vive” as an African Union-backed mil­i­tary force, which has strug­gled to get fi­nance for its op­er­a­tions, starts with­draw­ing in 2018, ac­cord­ing to BMI.

Im­prov­ing gov­er­nance may en­able the na­tion to ex­ploit po­ten­tially “quite large” oil and gas re­serves, Thiam said. The gov­ern­ment has said pro­duc­tion could be­gin as early as 2020 af­ter ex­plo­ration by com­pa­nies such as Royal Dutch Shell Plc, Exxon Mo­bil Corp. and BP Plc showed prob­a­ble off­shore hy­dro­car­bon de­posits. The state has held talks with those com­pa­nies about re­ac­ti­vat­ing dor­mant con­tracts.