Afghanistan Announces Debt Relief from the Russian Federation

August 7, 2007

This week Afghanistan signed an agreement with the Russian Federation which provides substantial debt relief to Afghanistan for debts accumulated over a number of years. Afghanistan has made no payments on these loans in recent years.

The immediate debt relief will total approximately $10.4 billion and will cover over 80 loan transactions, some of which date back to the late 1950s and early 1960s.

This debt write-off is being done under Afghanistan’s Paris Club agreement signed in July, 2006, with Russia, Germany, and the United States, as well as under the Heavily Indebted Poor Country (HIPC) initiative which is managed jointly by the International Monetary Fund and the World Bank. HIPC is a program designed to provide debt relief to the world’s poorest countries.

At the completion of Afghanistan’s HIPC program, additional debt relief will be provided by these Paris Club creditors (Russia, Germany and the United States), bring total debt relief to 100%.  The completion of Afghanistan’s program under HIPC is projected to take place as early as 2009, following Afghanistan’s achievement of various financial and social benchmarks.

This debt write-off, and that provided by other creditors, frees Afghanistan from millions of dollars worth of payments in future years providing the country the ability to use these funds for needed social and economic programs designed to improve the life of the Afghan people.

In addition to this relief from Russia, earlier this year Afghanistan received $29 million in immediate relief from Germany on debts contracted in previous years.  Afghanistan has also been notified by the World Bank that it will be providing approximately $124 million in total debt relief.  The Afghan government also expects to receive significant debt relief from the Asian Development Bank in the coming years.

The World Bank and the Asian Development Bank have provided substantial aid to Afghanistan in previous years in the form of loans and grants. Loans provided to Afghanistan have relaxed repayment terms and lower than normal service charges recognizing Afghanistan’s difficult economic environment.

In prior years Afghanistan has also received debt write-offs from China, Denmark, the Republic of Slovakia and the former West Germany.

This debt relief is being undertaken as part of a broader program to strengthen Afghanistan’s economy and rebuild infrastructure damaged over the last 30 years of war and occupation.