WASHINGTON, D.C., 26 January 2010: The World Bank’s International Development Association (IDA) and the International Monetary Fund (IMF) have agreed to support 1,6 billion US dollar in debt relief for Afghanistan.
The Boards of Directors of both institutions agreed that the country has taken the necessary steps to reach the completion point under the enhanced Heavily Indebted Poor Countries (HIPC) Initiative.
Afghanistan becomes the 27th country to reach the completion point under the Initiative. This will generate total debt service savings of 1,6 billion US dollar, which include1.3 billion US dollar from the HIPC Initiative, 260 million from Paris Club creditors beyond HIPC, and 38.4 million from the Multilateral Debt Relief Initiative (MDRI).
To reach the completion point, Afghanistan carried out a number of reforms despite an extremely challenging environment characterized by insecurity, a food crisis, and a difficult political situation. These reforms included actions to begin implementing Afghanistan’s National Development Strategy (ANDS), maintain a stable macroeconomic environment, and enhance debt management.
In addition, the authorities have made progress in public financial management, mining sector reforms, and transparency and accountability in health and education services.
The HIPC Initiative
In 1996, the World Bank and IMF launched the HIPC Initiative to create a framework in which all creditors, including multilateral creditors, can provide debt relief to the world’s poorest and most heavily indebted countries, and thereby reduce the constraints on economic growth and poverty reduction imposed by the debt burdens in these countries. The Initiative was modified in 1999 to provide three key enhancements:
• Deeper and Broader Relief. External debt thresholds were lowered from the original framework. As a result, more countries have become eligible for debt relief and some countries have become eligible for greater relief;
• Faster Relief. A number of creditors began to provide interim debt relief immediately at the “decision point.” Also, the new framework permitted countries to reach the “completion point” faster; and
• Stronger Link between Debt Relief and Poverty Reduction. Freed resources were to be used to support poverty reduction strategies developed by national governments through a broad consultative process.
To date, 35 HIPC countries have reached their decision points, of which 27 (including Afghanistan) have reached completion point.
The MDRI
At the July 2005 G8 Summit in Gleneagles, Scotland, G8 leaders pledged to cancel the debt of the world’s most indebted countries, most of which are located in Africa. The aim of this Multilateral Debt Relief Initiative (MDRI) was to reduce further the debt of HIPCs and provide additional resource to help them reach the Millennium Development Goals (MDGs) The MDRI is separate from the HIPC Initiative but linked to it operationally. Under the MDRI, three multilateral institutions – the World Bank’s International Development Association, the International Monetary Fund and the African Development Fund provide 100 per cent debt relief on eligible debts to countries having reached the HIPC completion point. Unlike the HIPC Initiative, the MDRI is not comprehensive in its creditor coverage. It does not involve participation of official bilateral or commercial creditors, or of multilateral institutions other than the above-mentioned three.
