On February 24, 2012, the Executive Board approved a partial distribution of the general reserve equivalent to SDR 700 million attributed to part of the gold sales windfall profits to all members in proportion to their quotas.
This note aims to provide country teams with broad guidance on engagement with countries in fragile situations. The aim of the guidance note is to help staff maintain focus on issues specific to countries in fragile situations. While engagement should focus on the issues and principles laid out in the note, there is, of course, scope for staff to tailor engagement to country specific circumstances beyond proposed practices.
Afghanistan has made important achievements in recent years. The 2011 Article IV Consultation highlights that authorities have taken steps to lay the foundation for economic stability and growth, despite a very difficult security situation and the challenges associated with building political and economic institutions. Directors agreed that the Extended Credit Facility (ECF)-supported program, accompanied by a technical assistance agenda, provides an appropriate framework for addressing the considerable challenges lying ahead and a basis for continued engagement with the donor community.
This Joint Staff Advisory Note discusses Afghanistan’s Poverty Reduction Strategy Paper's annual progress report. Afghanistan has experienced a number of extraordinary challenges that delayed its implementation. The security situation deteriorated markedly and has been dominated by the cross-border Taliban insurgency. Growth started to recover from a devastating drought. In May 2008, food and fuel prices peaked, leading to high inflation and pressure on the budget for additional fuel and food subsidies. These threats to macroeconomic stability have been accompanied by a period of political uncertainty for Afghanistan’s leadership.
According to the national household survey conducted during the summer and autumn of 2005, poverty in Afghanistan (headcount rate) is about 33 percent. Economic performance since the fall of the Taliban regime has been strong, and macroeconomic stability has been maintained. During 2002–03 through 2006–07, real GDP growth has averaged 15 percent per year, reflecting a recovery in agriculture, donor-funded postwar reconstruction, and initial yet promising growth of a range of private sector activities. The macroeconomic policy framework is broadly in line with the authorities’ economic program.
The Afghanistan National Development Strategy (ANDS) is Afghanistan’s Poverty Reduction Strategy Paper (PRSP). Implementation of the ANDS is highly dependent on donor assistance. The main general objectives of the ANDS are to improve the quality of life of Afghan people and to reduce poverty. ANDS will play a key role in improving aid coordination and aid effectiveness. The first draft of the ANDS chapter on implementation, monitoring and evaluation and the policy paper on how to improve aid coordination and aid effectiveness has been prepared.
Afghanistan has made substantial progress toward macroeconomic stability, but structural reforms need to be accelerated. The uncertainty affecting the fiscal outlook warrants a prudent expenditure policy. Monetary policy has been instrumental in reducing inflation and safeguarding external stability, but it needs to be strengthened. The government should resist pressures for expanding its role in the economy and focus on fostering competition and improving economic governance. The current exchange rate level appears in line with fundamentals. The government should increase its efforts to improve Afghanistan’s statistical database.
This paper discusses key findings of the First Review Under the Poverty Reduction and Growth Facility (PRGF) for Afghanistan. Despite a difficult security environment and persistent expenditure pressures, Afghanistan’s performance during the first six months of 2006/07 was in line with the program. The authorities met all the end-September 2006 quantitative performance criteria and indicative targets, the structural performance criterion, and most structural benchmarks, except those related to state-owned banks. The overall fiscal strategy for the remainder of 2006/07 and for 2007/08 strikes a balance between addressing critical spending pressures and fiscal sustainability.