IMF Announces $1.6 Billion in Debt Relief for Afghanistan

The announcement marks the end of a process that included clearance of arrears and debt reductions by Paris Club creditors since 1996 and will be followed by debt relief under the Enhanced Heavily Indebted Poor Countries (HIPC) Initiative, 100 percent debt relief from Paris Club creditors, and debt relief under the Multilateral Debt Relief Initiative.

These actions will lead to a 96 percent reduction of Afghanistan’s external debt, helping Afghanistan to regularize relations with its creditors and request additional support for the war-torn country’s reconstruction and poverty reduction initiatives.

The debt relief was granted in the context of the completion point of the enhanced HIPC initiative, a joint program between the IMF and the World Bank’s International Development Association (IDA).

"Afghanistan’s success in reaching the HIPC completion point is a reflection of its improved economic performance and reforms in the past year, despite a very difficult security and political situation," said Masood Ahmed, Director of the IMF’s Middle East and Central Asia Department.

Bolstering institutions, governance

To meet the criteria for debt relief, Afghanistan has undertaken reforms to strengthen institutions and improve economic governance, including:

- beginning to implement a poverty reduction strategy and aligning spending priorities with that strategy;

- tracking poverty-related spending;

- publishing data on the quantity and quality of health and education services;

- restructuring key service-delivery ministries;

- producing a medium-term fiscal framework;

- publishing the core budget financial statements;

- designing reforms for the civil service and the military pensions;

- enacting regulations for extraction of minerals and hydrocarbons; and

- establishing an external debt management system.

Afghanistan has recently performed well under a program supported by the Poverty Reduction and Growth Facility (PRGF), the IMF’s lending program for low-income countries (recently renamed the Extended Credit Facility). Under the IMF-supported program, Afghanistan has been implementing measures to increase tax collection and improve governance in tax agencies, keep inflation low, and strengthen the monitoring of public enterprises.

Despite a challenging security situation and political uncertainty in 2009, the country’s economic performance has improved noticeably. Inflation has declined...