* Paris Club agrees to cancel Afghanistan’s total debt

* Washington welcomes decision

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PARIS, March 17 (Reuters) - The Paris Club has agreed to cancel all of the debt owed to it by Afghanistan, in a deal worth $1.026 billion, the group of sovereign creditors said in a statement on Wednesday.

Afghanistan is one of the world’s poorest nations and faces funding needs to rebuild from years of conflict.

“As a contribution to restoring the Islamic Republic of Afghanistan’s debt sustainability, Paris Club creditors decided to cancel $441 million,” the group said after a meeting.

In addition, the creditors committed on a bilateral and voluntary basis to provide additional debt relief of $585 million, it said.

The participants were Germany, Russia and the United States.

The U.S. Treasury Department said the decision to forgive all Afghanistan’s debts will help put the country on a path of economic sustainability.

U.S. Treasury officials have been working with the Afghan ministry of finance since 2002 to streamline the budget process, improve payment systems and restructure its debt, which helped persuade the Paris Club to forgive its debts [ID:nWALHEE63R].

In late January, Afghanistan won $1.6 billion in debt relief from the World Bank, International Monetary Fund and creditor nations [ID:nN26143859].

The Paris Club creditors said they welcomed Afghanistan’s determination to implement a comprehensive poverty reduction strategy and an ambitious economic programme which would pave the way for sustainable economic growth amid a difficult global economic environment. (Writing by Anna Willard and Sophie Taylor; editing by Stephen Nisbet)