[stop-imf] Afghan failure to meet IMF target casts doubt on debt relief

[robert weissman]

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    Financial Times


    Afghan failure to meet IMF target casts doubt on debt relief

By Jon Boone in Kabul

Published: April 2 2008 03:00 | Last updated: April 2 2008 03:00

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
masterplan could be rejected.

Anwar Ul-Haq Ahady, finance minister, last week admitted to donors that
the government had failed to meet a target agreed with the IMF to raise
$715m (=80458m, =A3362m) 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 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
statist objectives.

A western official in Kabul said it "appeared the Afghans have tried to
avoid making [a] tough decision about priorities by simply throwing
everything into the document".

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.

Mr 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.