Press Release: IMF and World Bank Announce US$1.6 Billion in Debt Relief to Afghanistan

IMF News, January 26, 2010

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Published: January 26, 2010

Summary of the announcement

The World Bank's International Development Association (IDA) and the International Monetary Fund (IMF) agreed to support US$1.6 billion in debt relief for the Islamic Republic of Afghanistan.
Afghanistan reached the completion point under the enhanced Heavily Indebted Poor Countries (HIPC) Initiative and becomes the 27th country to reach the completion point.
The completion point will generate total debt service savings of US$1.6 billion, which include:
- US$1.3 billion from the HIPC Initiative (nominal terms)
- US$260 million from Paris Club creditors beyond HIPC (nominal terms)
- US$38.4 million from the Multilateral Debt Relief Initiative (MDRI)

Breakdown and technical details of relief

Debt relief under the HIPC Initiative from all of Afghanistan’s creditors amounts to US$582.4 million in net present value (NPV) terms.
Afghanistan is expected to receive the equivalent of US$1.3 billion of debt relief in nominal terms under the HIPC Initiative.
Paris Club creditors have indicated they would provide assistance beyond HIPC relief through 100 percent stock-of-debt cancellation, estimated at about US$260 million in nominal terms.
Upon reaching the completion point, Afghanistan qualifies for MDRI relief:
- MDRI relief will lead to a nominal reduction of debt to IDA by US$35 million.
- Afghanistan does not have any MDRI eligible debt outstanding to the IMF.
The completion point marks the end of a process (including clearance of arrears and Paris Club reductions since 1996) that will ultimately result in a 96 percent reduction of Afghanistan’s external debt, equivalent to US$11 billion in NPV terms.
Historical context: In March 2006, Afghanistan’s debt was equivalent to US$11.6 billion in net present value terms. In June 2006, Paris Club creditors provided debt relief through a flow treatment under Naples terms, including an up-front 80 percent discount on Russian debt disbursed before 1992.

Conditions, reforms, and implementation

To reach the completion point, Afghanistan implemented reforms despite insecurity, a food crisis, and political difficulties. Reforms included:
- Actions to begin implementing Afghanistan’s National Development Strategy (ANDS)
- Maintenance of a stable macroeconomic environment
- Enhancements in debt management
- Progress in public financial management, mining sector reforms, and transparency and accountability in health and education services
Waivers were granted for two completion point triggers that had been substantially implemented:
- Pension reform for public employees and the military
- Restructuring of four key service delivery ministries

Expected impact and risks

Reforms under the HIPC Initiative are expected to mobilize additional resources, support reconstruction and poverty reduction, and help place Afghanistan on a sustainable path.
Risks and cautions:
- Even after HIPC debt relief, Afghanistan will remain a country under high risks of debt distress due to its reliance on donor funding.
- Continued improvements in security and substantial, sustained support from donors and multilateral institutions will be required.

Principal policy recommendations and priorities (from IMF and World Bank statements)

Raise domestic revenues.
Invest in infrastructure.
Press ahead with the implementation of the ANDS to reduce poverty.
Sustain substantial and sustained donor and multilateral institution support.
Continue reforms in public financial management, mining, and service delivery transparency and accountability.

Key statistics and indicators

Total announced debt relief: US$1.6 billion
HIPC nominal relief: US$1.3 billion
Paris Club beyond-HIPC nominal assistance: US$260 million
MDRI nominal reduction to IDA: US$35 million
MDRI component cited elsewhere in announcement: US$38.4 million
HIPC NPV relief from all creditors: US$582.4 million
Long-run external debt reduction: 96 percent, equivalent to US$11 billion in NPV terms
Afghanistan per capita income (2008): about US$425
Afghanistan ranking: one of the poorest countries in the world; performance under the IMF’s Poverty Reduction and Growth Facility arrangement described as satisfactory

Source: Press Release No. 10/15, January 26, 2010 — IMF and World Bank announcement on US$1.6 billion in debt relief to Afghanistan; https://www.imf.org/en/news/articles/2015/09/14/01/49/pr1015