© 2007 International Monetary Fund

Abstract

© 2007 International Monetary Fund

Copyright

© 2007 International Monetary Fund

July 2007

IMF Country Report No. 07/253

Islamic Republic of Afghanistan: Enhanced Heavily Indebted Poor Countries Initiative—Decision Point Document and Debt Sustainability Analysis

This paper was prepared by staff of the International Monetary Fund and the World Bank in connection with the Executive Board’s consideration of the Islamic Republic of Afghanistan’s decision point and debt sustainability analysis under the Enhanced Heavily Indebted Poor Countries Initiative. It is based on the information available at the time it was completed on June 8, 2007. The views expressed in this document are those of the staff team and do not necessarily reflect the views of the government of the Islamic Republic of Afghanistan or the Executive Board of the IMF.

The policy of publication of staff reports and other documents by the IMF allows for the deletion of market-sensitive information.

To assist the IMF in evaluating the publication policy, reader comments are invited and may be sent by e-mail to publicationpolicy@imf.org.

Copies of this report are available to the public from

International Monetary Fund • Publication Services

700 19th Street, N.W. • Washington, D.C. 20431

Telephone: (202) 623 7430 • Telefax: (202) 623 7201

E-mail: publications@imf.org • Internet: http://www.imf.org

Price: $18.00 a copy

International Monetary Fund

Washington, D.C.

Title Page

INTERNATIONAL MONETARY FUND AND

INTERNATIONAL DEVELOPMENT ASSOCIATION

ISLAMIC REPUBLIC OF AFGHANISTAN

Enhanced Heavily Indebted Poor Countries (HIPC) Initiative—Decision Point Document

Prepared by the Staffs of the International Monetary Fund and the International Development Association

Approved by Juan Carlos Di Tata and Matthew Fisher (IMF) and Praful Patel and Danny Leipziger (IDA)

June 8, 2007

Contents

  • List of Acronyms

  • I. Introduction

  • II. Background and Eligibility for HIPC Initiative Assistance

    • A. PRGF and IDA Status

    • B. Dimensions of Poverty

    • C. Recent Political, Security, and Governance Developments

    • D. Macroeconomic and Structural Reform Track Record

  • III. Medium- to Long-Term Strategy for Poverty Reduction

    • A. The PRSP Formulation Process

    • B. Medium- to Long-Term Macroeconomic Outlook

    • C. The Reform Agenda

  • IV. Possible Assistance Under the HIPC Initiative and Debt Sustainability Analysis

    • A. Debt Reconciliation Status

    • B. Structure of External Debt

    • C. Possible Assistance Under the HIPC Initiative

    • D. Debt Sustainability Analysis

    • E. Sensitivity Analysis

    • F. MDRI and Possible Bilateral Assistance Beyond HIPC

  • V. The Floating Completion Point

    • A. Triggers for the Floating Completion Point

    • B. Monitoring the Floating Completion Point Triggers

    • C. The Use and Monitoring of Public Resources

    • D. The Authorities’ Views

  • VI. Issues for Discussion

  • Boxes

  • 1. External Arrears Clearance

  • 2. Staff Estimation of Afghanistan’s Exports of Services

  • 3. Key Macroeconomic Assumptions Underlying the DSA

  • 4. Triggers for the Floating Completion Point

  • 5. Medium-Term Expenditure Priorities

  • Figures

  • 1. Composition of Stock of External Debt as of March 20, 2006, by Creditor Group

  • 2. Potential Costs of the HIPC Initiative by Creditor Group

  • 3. External Debt Sustainability Indicators, 2005/06–2025/26

  • 4. Sensitivity Analysis, 2005/06–2025/26

  • Tables

  • 1. Selected Poverty and Social Indicators

  • 2. Corruption Perception Index, 2005

  • 3. Selected Economic and Financial Indicators

  • 4. External Debt as of March 20, 2006

  • 5. HIPC Initiative Assistance Under a Proportional Burden-Sharing Approach: Net Present Value of Debt as of March 20, 2006

  • A1. Nominal Stock and Net Present Value of Debt as of March 20, 2006, by Creditor Groups

  • A2. Discount and Exchange Rates at end-March 2006

  • A3. External Debt Service, 2006/07–2025/26

  • A4. Net Present Value of External Debt, 2005/06–2025/26

  • A5. External Debt Indicators, 2005/06–2025/26

  • A6. External Debt Indicators and Sensitivity Analysis, 2005/06–2025/26

  • A7. HIPC Initiative: Status of Country Cases Considered Under the Initiative, March 19, 2007

  • A8. Possible Delivery of IDA Assistance Under the Enhanced HIPC Initiative, 2006/07–2028/29

  • A9. Long-Term Macroeconomic Assumptions, 2006/07–2026/27

  • A10. Paris Club Creditors’ Delivery of Debt Relief Under Bilateral Initiatives Beyond the HIPC Initiative

  • A11. Status of Creditor Participation Under the Enhanced HIPC Initiative

  • Appendix

  • I. Debt Management Capacity

List of Acronyms

ADF

Afghanistan Development Forum

AFMIS

Afghanistan Financial Management Information System

ANDS

Afghanistan National Development Strategy

ANA

Afghan National Army

ANP

Afghan National Police

AsDB

Asian Development Bank

BPHS

Basic Package of Health Services

CAS

Country Assistance Strategy

CPIA

Country Policy and Institutional Assessment

DAB

Da Afghanistan Bank

DAMU

Debt and Asset Management Unit

DSA

Debt Sustainability Analysis

EITI

Extractive Industries Transparency Initiative

GDP

Gross Domestic Product

GNI

Gross National Income

HIPC

Heavily Indebted Poor Countries

I-ANDS

Interim Afghanistan National Development Strategy

IDA

International Development Association

IMF

International Monetary Fund

ISN

Interim Strategy Note

LIC

Low Income Countries

LICUS

Low Income Countries Under Stress

MDG

Millennium Development Goal

MDRI

Multilateral Debt Relief Initiative

MoPH

Ministry of Public Health

MTFF

Medium-Term Fiscal Framework

NPV

Net Present Value

NRVA

National Risk & Vulnerability Assessment

ODA

Official Development Assistance

OFID

OPEC Fund for International Development

PAR

Public Administration Reform

PFEM

Public Finance and Expenditure Management

PRGF

Poverty Reduction and Growth Facility

PRR

Priority Reform and Restructuring

PRSP

Poverty Reduction Strategy Paper

SDR

Special Drawing Rights

SMP

Staff Monitored Program

Islamic Republic of Afghanistan: Enhanced Heavily Indebted Poor Countries Initiative: Decision Point Document and Debt Sustainability Analysis
Author: International Monetary Fund