Somalia’s $1.3bn lifeline under threat
Somalia’s $1.3 billion annual remittance lifeline is under threat of being cut off in the US, UK and Australia, three non-governmental organisations warned in a report – Hanging by a Thread: The ongoing threat to Somalia’s remittance lifeline – released today.
The warnings come as the US Merchants Bank recently closed all accounts with Somali money transfer operators (MTOs). According to the money transfer operators Merchants Bank was responsible for up to 60-80 per cent of all remittances from the US to Somalia. In Australia, banks are considering closing their Somali remittance accounts and last year in the UK Barclays Bank closed accounts of Somali MTOs.
Annual remittances to Somalia dwarf the yearly humanitarian aid, development aid and foreign direct investment budgets for Somalia combined, and make up between 25-45 percent of the country’s GDP.
The organisations said that governments should urgently make good their promises to keep this crucial flow of cash open. Failure to do so will put three million Somalis at risk of hunger this year, it will mean families will not be able afford health care, and a generation of children could be kept out of school. According to the UN only 42 percent of primary aged children are in school. The cutting off the source of funds that many families use to pay for education would cause those figures to plunge even lower.
Degan Ali, Adeso’s Executive Director, said:
“If banks choose to end their relationships with Money Transfer Organisations, families stand to lose the only transparent means of cash transfer open to them. Many will be forced to use informal channels to send and receive funds from loved ones overseas, and likely incur higher transaction fees in the process.”
Enzo Vecchio, Oxfam’s Somalia Country Director said:
“Over 40 percent of Somalis living in Somalia rely on remittances to meet their basic daily needs, such as such as food, health and education. Cutting off this lifeline could plunge many people back into catastrophe. The international community is working hard to prevent the crisis in Somalia from getting worse, but remittances play a crucial role in keeping families above the poverty line, and this lifeline must be kept open to them.”
The situation is dire, but a number of Western governments are taking initial steps to keep remittances flowing. The UK has made some positive progress with its ‘Safer Corridors’ initiative, which aims to build banks’ confidence in Somali MTOs by strengthening their accountability and transparency mechanisms. The Government, however, needs to move quickly to implement the programme and ensure more active engagement with the banking sector.
The G20 group of leading economies and the global Financial Action Task Force hope to address the issue of bank ‘de-risking’, and the World Bank is leading in rolling out the UK’s Safer Corridor initiative and advising Somali authorities on how to set up stronger public financial management systems.
Despite these positive steps more needs to be done to keep this vital lifeline open.
Liat Shetret, New York Office Director, Global Center on Cooperative Security said:
“The Somali government must prioritise improving its financial management systems, particularly in terms of transparency, remitting country governments must work with their banking sectors to manage risk, and MTOs should improve their accountability and transparency procedures further to mitigate risk.
“Furthermore, the World Bank should take a more collaborative approach to strengthening the whole system, from financial management in Somalia to international support to keeping remittance systems operational; and the G20 must use their convening power to call on member states to work with their banking sectors.”
Source: oxfam.org.uk