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 US$1.6 billion, which include US$1.3 billion from the HIPC Initiative, US$260 million from Paris Club creditors beyond HIPC, and US$38.4 million from the Multilateral Debt Relief Initiative (MDRI).

To reach the completion point, Afghanistan carried out a number of important 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. Based on strong commitments going forward, the Government of Afghanistan was granted waivers for two completion point triggers on pension reform for public employees and the military, and the restructuring of four key service delivery ministries, both of which had been substantially implemented. Reforms under the HIPC Initiative are expected to mobilize additional resources and support the country’s reconstruction and poverty reduction, helping to place it on a sustainable path.

“The Afghan government has demonstrated a very strong commitment to an ambitious reform program since it reached its HIPC decision point in 2007,” said Nicholas J. Krafft, World Bank Country Director for Afghanistan. “This is a very commendable achievement given the deteriorating security situation and political uncertainty over the recent election year. On a cautionary note, even after HIPC debt relief Afghanistan will remain a country under high risks of debt distress due its reliance on donor funding.”

“The authorities should be commended for their efforts amid a very difficult environment,” said Enrique Gelbard, the IMF mission chief for Afghanistan. “Alongside improvements in security, the key challenges going forward will be to raise domestic revenues, invest in infrastructure, and press ahead with the implementation of the ANDS to reduce poverty. This will require significant efforts by the authorities as well as substantial and sustained support from donors and multilateral institutions.”

Debt relief under the HIPC Initiative from all of Afghanistan’s creditors amounts to US$582.4 million in net present value (NPV) terms. All multilateral and Paris Club creditors, as well as some other official creditors have agreed to participate. Afghanistan is expected to receive the equivalent of US$1.3 billion of debt relief in nominal terms under the HIPC Initiative. In addition, Paris Club Creditors have also indicated that 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 also qualifies for debt relief under the Multilateral Debt Relief Initiative (MDRI). 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 that included clearance of arrears and debt reductions by Paris Club creditors since 1996 and will ultimately result in a 96 percent reduction of Afghanistan’s external debt, equivalent to US$11 billion in NPV terms.