The United States and Somalia reached an agreement on Tuesday for Washington to cancel more than $1 billion debt owed by the troubled Horn of Africa nation.
The announcement came a day after the parliament in Somalia, which is heavily dependent on international aid, approved a $1.36 billion national budget for 2025.
Somalia is one of the poorest countries on the planet, enduring decades of civil war, a bloody insurgency by the Al-Qaeda linked jihadist group Al-Shabaab, and frequent climate disasters.
Tuesday's deal was inked by Somalia's Finance Minister Bihi Egeh and the US ambassador to Mogadishu, Richard Riley, who described it as a "great day".
Riley said at a signing ceremony that the bilateral agreement forgives Somalia's $1.14 billion debt to the United States.
This was, he said, the largest single component of a total of $4.5 billion in debt owed to multiple countries that was forgiven under a deal with the International Monetary Fund and World Bank in December.
"Somalia, with the help of the United States and our international partners, undertook a host of reforms passing new laws, changing the way it operates, bringing improved accountability to its finances and moving towards sustainable practices," he added.
In a post on X, Egeh thanked the United States for its "unwavering support of our economic reforms and growth".
The US embassy said the debt relief was in addition to $1.2 billion in development, economic, security, and humanitarian assistance that Washington has provided to Somalia this year, describing the US as a "steadfast partner" for the people of Somalia.
Around 70 percent of the population lives on less than $1.90 a day, according to World Bank figures.
The national spending plan approved by Somalia's parliament on Monday represents an increase of almost 25 percent over the 2024 budget.
The finance ministry has forecast economic growth at 3.7 percent for this year and 3.9 percent for 2025, compared with 2.8 percent last year, according to its budget strategy.
However it warned that growth rates could be affected by the disruption of grain supplies because of the prolonged war in Ukraine, as 90 percent of Somalia's wheat imports come from Russia and Ukraine.
Other risks include the conflict in the Middle East which has affected global supply chains, and the impact of recent drought, it said.
In March, Mogadishu secured an agreement with international creditors to cancel more than $2 billion in debt, the Paris Club of creditor nations said.
That followed the December IMF-World Bank deal sealed when Somalia reached the "completion point" of a debt management scheme known as the Heavily Indebted Poor Countries Initiative (HIPC).
Somalia's external debt has fallen from 64 percent of gross domestic product in 2018 to less than six percent of GDP by the end of 2023.
