Why Somalia Hasn’t Felt Its Post-HIPC Gains: 10 Hard Truths

Issue 11

Somalia reached the HIPC Completion Point in December 2023. By all accounts, this milestone should have unlocked a wave of economic benefits: cheaper financing, renewed investor interest, and more fiscal space. But for many Somalis, the promised gains haven’t materialized. Why?

Let’s explore what typically happens after HIPC relief, what’s been different in Somalia, and how the government can still make the dividend real.

What a Post-HIPC Dividend Usually Brings

• Lower debt service frees up budget space for development priorities.

• Improved investor confidence encourages private sector growth and FDI.

• Expanded fiscal space allows governments to invest more in public services, infrastructure, and social protection.

• Enhanced reform credibility attracts concessional financing and donor support.

• Macroeconomic stability becomes more achievable, supporting long-term planning.

• Better credit ratings can open access to international capital markets.

• Stronger institutions often emerge from the reform process, improving governance.

• Increased policy autonomy enables governments to pursue national development goals more effectively.

What’s Been Different in Somalia

1. Lingering shocks clouded the window.
The 2022 food and fuel price spikes, droughts, and floods spilled into 2023–2025. Inflation stayed relatively high (around 4.6% in May 2025*), and humanitarian needs driven by climate shocks grew. While external factors played a major role, policy cushioning was limited. Households and small businesses bore the brunt.

2. Budget gains didn’t translate into visible improvements.
Debt service costs may have dropped, but citizens have not seen more services or public works. Security and emergency spending are on the rise, while capital and social projects continue to lag behind. In scenarios like this, people often lose trust in the government, fuelling frustration and disengagement. Also, perceptions of corruption and exclusion may increase to the detriment of vertical social cohesion.

3. Revenue efforts added pressure on small businesses.
Efforts to boost revenue were necessary, but new fees and stricter compliance came during a fragile recovery. Without offsetting measures like simplified licensing or fee consolidation, confidence among small businesses remains low. The persistent political wrangling didn’t help either – confidence is fragile, and in Somalia, it often feels like it’s hanging by a thread. So, small businesses seem to be more pessimistic than usual.

4. Trade and logistics costs stayed high.
Diverging port charges, slow clearance, and inland checkpoints kept prices elevated. Somalia remains one of the most economically disintegrated countries in the world. These frictions dulled the competitiveness boost that HIPC was supposed to bring. After all, how does an import-dependent economy with weak internal linkages survive?

5. Coordination with federal member states was uneven.
Scaling up services like health and education requires strong center–FMS collaboration. Political in-fighting, delays, and unpredictable transfers slowed progress – especially in areas hosting displaced populations (one in four of the Somali population is an IDP!). People suffer when elites are self-absorbed, and sadly, this has long been the story of the Somali people.

6. Investment climate reforms moved slowly.
HIPC is meant to signal reform momentum. But key investor-facing reforms (e.g., licensing, dispute resolution, PPP frameworks etc.) lagged. Announcements outpaced delivery. Investors don’t come based on potential alone; they rely on hard evidence and due diligence. Unfortunately, Somalia isn’t there yet and hence why Nairobi is benefiting more than Mogadishu or Hargeisa.

7. Energy costs remained a barrier.
Electricity stayed expensive and infrastructure weak, limiting business growth. Faster approvals for solar and mini-grids, along with tariff relief, could have helped but these require robust, forward-looking policies, which haven’t been prioritized. We are still stuck focusing on the same short-sighted priorities (e.g., 4.5 etc.).

8. Social protection didn’t scale fast enough.
Food insecurity and climate shocks surged, but cash support programs didn’t expand quickly because of poor planning and reduced ODA. Existing initiatives like Baxnaano weren’t scaled to meet the shock. In the end, donor dependency deepened, undermining state legitimacy and leaving people to bear the cost.

9. Expectations weren’t well managed.
HIPC was framed as an immediate win, but its benefits are, at best, medium- to long-term. Without clear communication, public expectations outpaced what the budget and Somali policymakers could realistically deliver. It’s the classic trap – overpromise, underdeliver!

10. Reform compliance lacked visible pro-growth actions.
Formal steps tied to HIPC and IMF programs were met. But discretionary actions (e.g., trade facilitation or MSME support etc.) weren’t prioritized, leaving the dividend hard to see. In fact, few pro-growth actions have been taken. Chief among them is addressing political instability. Without stability and security, where would growth even come from?

What Can Still Be Done

Somalia still has options to make the HIPC dividend visible and impactful:

• Publish a HIPC Dividend Plan with 10 dated clear, pro-growth actions focused on job creation, infrastructure, and service delivery to signal reform commitment, crowd in donor support, and build public trust.

• Rebalance the budget toward social and capital spending by setting quarterly targets, using pre-authorized procurement, and aligning with donor-funded priorities to maximize impact within tight fiscal constraints.

• Cut trade costs by implementing a national single-window system, publishing transparent tariffs, and coordinating joint enforcement to eliminate illegal roadblocks.

• Protect household purchasing power through targeted pro-poor subsidies, expanded digital cash transfers, and temporary social protection measures.

• Attract private investment by streamlining e-licensing, establishing transparent PPP/SOE frameworks, enhancing investor protections, offering risk guarantees, and fostering security and political stability.

• Lower energy costs via sustainable decentralized energy solutions, innovative financing and local capacity building.

Final Thoughts

The post-HIPC dividend presents a real opportunity but realizing its benefits requires intentional and timely action. In Somalia’s case, while external shocks have been significant, the greater setback lies in delayed policy responses, underutilized fiscal space, and the lack of progress on security and political stability. Yet, with smart, visible, and coordinated steps, Somalia can still pivot toward a more promising future and ensure the dividend translates into tangible gains for its people. After all, its people have suffered more than any and they deserve to finally know what it feels like to truly live.

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*SNBS: “Over the twelve months to May 2025, the CPI rose 4.6%. The most significant price rises over the twelve months were Personal Care, Social Protection and Miscellaneous Goods And Services (+11.7%), Transport (+8.9%), Restaurants and Accommodation (+5.8%), Housing, Water, Electricity, Gas and Other Fuels (+4.5%), and Clothing and Footwear (+4.1%)” (See here: https://nbs.gov.so/category/consumer-price-index/)