Violence has hindered Iraq's economic recovery this year
Iraq will see the bulk of its $120bn (£69bn) debt written off by the end of 2006, its finance minister Ali Allawi has told the BBC.
Mr Allawi said debt levels would then fall to a "supportable" level of $30bn.
Creditors from the Paris Club of rich nations have agreed to cancel most of the $40bn owed to them after Iraq made strides to ensure economic stability.
High levels of violence have hindered Iraq's recovery but it is expecting stronger economic growth next year.
Economic stability
It is hoped that the formation of a permanent government following this month's elections and an improvement in the security situation will boost economic performance.
Price stability, exchange rate stability, consistency of economic policy. That is all taking place
Ali Allawi, Iraqi interim finance minister
Iraq reached agreement with the International Monetary Fund (IMF) this month on support for its medium-term reconstruction, a key step in reducing its debt burden.
The Paris Club of nations, which include the United States, United Kingdom and Russia, had made its pledge to write-off Iraq's debts conditional on an IMF agreement.
The IMF praised Iraq for its success in promoting economic stability, particularly in stabilising exchange rates.
It is hoped the election of a new government will increase stability
Mr Allawi said the IMF agreement reflected the improvement in its public finances over the past 18 months.
"Just after the war, the total debt stock of Iraq was nearly $150bn," he said.
"With the write-off that is going to take place now, it is going to dwindle down to about $30bn, which is supportable."
Iraq has also reached agreement with private creditors and other countries such as China which will eliminate about 80% of its debt by the end of next year.
Security issue
Iraq's economy is estimated to grow by just 2.5% this year.
Mr Allawi's said this modest performance was "understandable" given the high levels of violence and that growth could top 12% in 2006.
He also admitted that the security situation had to improve before Iraq could raise money on the international financial markets, crucial to the long term development of its economy.
"There has been a great deal of disruption to oil pipelines and oil infrastructure but this is now being handled reasonably well," he said.
"Price stability, exchange rate stability, consistency of economic policy. That is all taking place."
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