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Somalia’s debt will be slashed to a fraction of its current levels after almost $5bn (£4.1bn) of assistance was approved by the International Monetary Fund and World Bank.

A joint statement from the global financial institutions praised Somalia’s efforts at economic reform, allowing it to qualify for a debt relief programme and reintegrate into the global economy after 30 years.

“The journey leading to this decision required hard work, dedication and partnership,” said Somalia’s prime minister, Hassan Ali Khayre. “This decision is an important milestone, which presents ample opportunities for Somalia as it relentlessly pursues its ongoing reform processes as well as its recovery and development agenda.”

Through the heavily indebted poor countries initiative, Somalia’s debt will be reduced from $5.2bn to $557m over three years.

To qualify, Somali had to commit to a range of broad economic reforms, including strategies for reducing poverty and building an inclusive economy, and improve its governance and debt management.

“Work must continue to sustain and expand the implementation of these reforms as Somalia starts a new chapter of its history. I am confident a more resilient and prosperous future lies ahead for the people of Somalia,” said the IMF’s managing director, Kristalina Georgieva.

The World Bank is also considering investments that would help Somalia deal with recent flooding and an unprecedented locust outbreak in the Horn of Africa – which the UN has warned could threaten the food stability of 25 million people – and to prepare for the threat of Covid-19, as the number of cases in Africa rises.

On Wednesday, the IMF and World Bank called for creditors to suspend debt repayments from the world’s 76 poorest countries to allow them to prepare for the challenges posed by coronavirus.

Somalia is also preparing this year to hold its first democratic elections since 1969. The current president, Mohamed Abdullahi Mohamed, was elected by MPs.

The UN, the African Union and the EU welcomed the debt relief as a way of helping Somalia build its economy.

“The government will have more resources for social services; banks and business will have easier access to credits and investments,” the EU’s ambassador to Somalia, Nicolas Berlanga, tweeted.

The EU announced on Thursday that it would provide €43m (£39m) to help clear Somalia’s debts.

Somalia’s arrears to the IMF, World Bank and African Development Bank were cleared with the help of bridge financing from Norway, Italy, the UK and the EU.

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