IMF approves $133.6 million loan for Afghanistan | world | Hindustan Times
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IMF approves $133.6 million loan for Afghanistan

world Updated: Nov 15, 2011 20:17 IST

The International Monetary Fund said on Tuesday it had approved a $133.6 million loan program for Afghanistan, marking a fresh start to relations strained since last year over the handling of a bank crisis.

The agreement is set to unleash about $200 million in donor funding that was held up by the dispute. The IMF said it would immediately disburse $18.9 million of the loan to the Kabul government.

The three-year loan will support Afghanistan's economic program through 2014, when a NATO/US-led international security force is set to withdraw from Afghanistan and the government needs to shoulder more security spending. Aid flows are also set to decline over the next three to five years.

"While donor support is projected to remain substantial, the expected gradual decline will curtail the fiscal space and require external adjustment," said Nemat Shafik, IMF deputy managing director, in a statement.

The IMF suspended its Afghan program last year after reports emerged of corruption, bad loans and mismanagement at a major Afghan bank, which forced the central bank to take over the politically connected Kabul Bank.

The Fund demanded that some of the assets be recovered and urged the government to strengthen the financial sector to prevent another scandal.

IMF support is a critical seal of approval that is closely watched by donors, who would normally halt funding to a country at any sign of disapproval by the Washington-based institution.

Shafik said while Afghan authorities had taken steps to avert a broader financial meltdown after the collapse of Kabul Bank, she urged more forceful action to
recover the bank's assets and bring those responsible for the fraud to justice.

"Asset recovery and legal actions against the architects of the fraud have lagged and need to be pursued more forcefully," she said, adding that an audit of the bank was currently under way to look into who benefited from the fraud.