Washington DC (BBN)- The World Bank and the International Monetary Fund (IMF) have agreed to support US$1.6 billion 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.

Under the debt relief, Afghanistan will generate total debt service savings of $1.6 billion, which include US$1.3 billion from the HIPC initiative, $260 million from Paris Club creditors beyond HIPC, and $38.4 million from the multilateral debt relief initiative (MDRI), an announcement said on Tuesday.

“….Afghanistan carried out a number of important reforms despite an extremely challenging environment characterized by insecurity, a food crisis, and a difficult political situation,” the announcement added.

Afghanistan is one of the poorest countries in the world. Per capita income is estimated to have been about $425 in 2008, and Afghanistan ranks well behind its neighbors on most human development indicators.

“The Afghan government has demonstrated a very strong commitment to an ambitious reform program since it reached its HIPC decision point in 2007,” World Bank Country Director for Afghanistan Nicholas J. Krafft said, adding: “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,” IMF mission Chief for Afghanistan Enrique Gelbard said.

The IMF mission chief also said: “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 Afghanistan’s National Development Strategy (ANDS) to reduce poverty.”

BBN/SS/SI/AD-27January10-12:04 pm (BST)