Afghan failure to meet IMF target casts doubt on debt relief: a report

Associated Press of Pakistan

LONDON, April 2 (APP)- The influential British daily ‘Financial Times’ has reported that International aid and debt relief for Afghanistan has been thrown into doubt by the country’s failure to honour an agreement with the International Monetary Fund and warnings that its three-year development master plan could be rejected.

According to the paper, Afghan Finance Minister Anwar-ul-Haq Ahady last week admitted to donors that the government had failed to meet a target agreed with the IMF to raise $715m in taxes. At just 8.2 per cent of gross domestic product, the goal had been described by economists as “unambitious”.

At the same time, the paper said ,the World Bank and other donors have told the government that the latest drafts of the Afghan National Development Strategy, a document to which future funding and debt relief is pegged, is of such poor quality that it will be rejected if submitted in its current form.

Kabul’s failure to meet the tax revenue target and the risk that it will fail to produce an adequate development strategy have serious ramifications for both future international funding and the $10.6bn of debt relief it currently enjoys through the IMF-backed Heavily Indebted Poor Countries initiative.

The government has had almost three years to produce the development plan and received at least $15m from donors to support its drafting. Western observers in Kabul have caustically referred to it as the “world’s most expensive poverty reduction strategy”.

The document has been criticised for being unwieldy, lacking specifics and featuring free-market economic principles sitting uneasily with more statistic objectives.

The World Bank said the plan had not yet been rejected and that they looked forward to receiving the complete document – but time was running out.

A Ministry of Finance team has taken over the project in an attempt to get a workable document together before a donors’ conference in Paris in June, when the international community is expected to make future development pledges.

The hope had been that they would be able to use the existing strategy document as a basis for making future donations.

Under the terms of its agreement with the IMF, Afghanistan must produce a poverty reduction strategy which it has wrapped into its National Development Strategy – acceptable to the fund.

At the same time, Afghanistan must meet other obligations, including gradually raising its tax take, to make it less dependent on aid.

Ahady told donors in Kabul last week that the government fell short of the $715m target by about $50m because political turmoil in neighbouring Pakistan reduced customs revenues on imports into Afghanistan.

But members of the international community have questioned the explanation. An IMF team due to visit this month is to decide whether Kabul was at fault and could recommend that Afghanistan be stripped of its debt relief facility.