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IMF Executive Board Completes Fifth Review of the Extended Credit Facility Arrangement for the Islamic Republic of Afghanistan

Author(s):
International Monetary Fund. Middle East and Central Asia Dept.
Published Date:
June 2019
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  • In the face of many headwinds, Afghanistan’s government continues to demonstrate strong ownership of the program supported by the Extended Credit Facility arrangement.
  • The economic outlook is clouded by numerous uncertainties, but ongoing peace negotiations offer hope for a much-needed improvement in the security situation.
  • Continued reforms remain key to achieving higher and more inclusive growth.

On June 3, 2019, the Executive Board of the International Monetary Fund (IMF) completed the Fifth Review of Afghanistan’s economic program supported by an arrangement under the Extended Credit Facility (ECF).1 The completion enables the release of SDR 4.5 million (about US$6.2 million), bringing total disbursements under the arrangement to SDR 27 million (about US$37.3 million). The ECF arrangement for SDR 32.38 million was approved on July 20, 2016 (see Press Release No. 16/348).

Program implementation has been satisfactory, despite the challenging security and political environment, which continues to undermine economic activity. Nevertheless, with an expected recovery in agriculture following last year’s drought, the outlook is for a pickup in GDP growth to 3 percent in 2019. This is subject to downside risks, including potential election-related disruptions, increased violence, uncertainties surrounding the peace negotiations, and the strength of recovery from last year’s drought. On the upside, a durable peace, boosting private sector confidence and pro-growth investment, supported by repatriation of overseas capital, would improve economic prospects significantly.

Continued strong program ownership by the government remains vital to its success. Reforms in support of fiscal sustainability, institution building, anti-corruption efforts, and financial stability should continue.

Following the Executive Board discussion, Mr. Mitsuhiro Furusawa, Deputy Managing Director and Acting Chair, made the following statement:

“The Afghan government, guided by its National Peace and Development Framework and the program supported by the Extended Credit Facility arrangement, remains committed to policies pursuing macroeconomic stability, self-reliance, and inclusive growth.

“These policies have delivered rapidly rising revenues allowing timely payment of wages, social assistance, and investment in infrastructure, and provided low inflation and a functioning banking system. The outlook envisages a modest recovery in 2019 with low inflation, and growth rising to five percent by 2023 assuming continued reforms, sustained aid, and no significant security deterioration.

“While ongoing peace talks provide hope for a political settlement, the sustained insurgency and political uncertainty before the September presidential election cloud the outlook.

“Continued cautious fiscal policy remains critical considering risks to revenues and grants and limited financing options. Sustainable revenue mobilization for security, pro-poor and development spending remains a priority. Institutions should be further strengthened, and policies promising short-lived quick wins at the expense of macroeconomic stability or debt sustainability avoided.

“External financing should continue to rely on grants and concessional funding. Any scaling up of externally financed public investment should be gradual and preceded by an assessment of macro-fiscal implications and strengthened debt management.

“Safeguarding financial stability while boosting financial inclusion is another key priority. Addressing the weak private banks’ shortcomings and reforming state-owned commercial banks are key challenges. The central bank’s remaining lender-of-last resort exposure due to Kabul Bank’s closure should be eliminated this year, and recovery of stolen Kabul Bank assets revived.

“Continued anti-corruption reforms are needed to boost transparency, accountability, and confidence, building on measures that criminalized corruption and strengthened the asset declaration framework for public officials.

“Completion of this review demonstrates continued strong program ownership. The IMF and international partners continue to assist Afghanistan in support of its objectives, including with capacity development.”

Islamic Republic of Afghanistan: Selected Economic Indicators, 2016–20(Quota: SDR 323.8 million)(Population: approx. 34.7 million)(Per capita GDP: approx. US$570; 2017)(Main exports: fruits and vegetables, US$ 216.2 million; carpets, US$ 39.0 million, 2016)
20162017201820192020
Est.Proj.Proj.
Output and prices 1/(Annual percentage change, unless otherwise indicated)
Real GDP2.22.72.73.03.5
Nominal GDP (in billions of Afghanis)1,3181,3781,4211,4911,597
Nominal GDP (in billions of U.S. dollars)19.420.219.620.020.7
Consumer prices (period average)4.45.00.61.83.5
Public finances (central government)(In percent of GDP)
Domestic revenues and grants26.125.328.626.029.2
Domestic revenues10.712.213.412.612.9
On-budget grants (excl. donors’ direct spending outside the budget)15.413.015.213.416.4
Expenditures26.025.927.026.829.2
Operating 2/18.918.418.218.319.7
Development7.17.58.98.49.5
Operating balance (excluding grants) 3/-8.2-6.2-4.8-5.7-6.8
Overall balance (including grants)0.1-0.61.5-0.80.0
Public debt 4/5/7.87.56.96.87.1
Monetary sector(Annual percentage change, end of period, unless otherwise indicated)
Reserve money11.810.2-2.710.59.9
Broad money5.65.92.69.09.0
External sector 1/(In percent of GDP, unless otherwise indicated)
Exports of goods (in millions of U.S. dollars)6147848759461023
Exports of goods (annual percentage change)6.327.611.68.18.1
Imports of goods (in millions of U.S. dollars)6,5367,0246,9007,1037,323
Imports of goods (annual percentage change)-13.77.5-1.83.03.1
Current account balance
Excluding official transfers-30.6-32.4-30.2-31.3-31.2
Including official transfers7.63.46.92.11.4
Foreign direct investment0.60.30.70.50.5
Total external debt 4/6.16.36.46.87.0
Gross international reserves (in millions of U.S. dollars)7,3578,1398,2738,3498,348
Import coverage of reserves 6/10.912.111.911.611.3
Exchange rate (average, Afghanis per U.S. dollar)67.968.172.4

Excluding the narcotics economy.

Comprising mainly current spending.

Defined as domestic revenues minus operating expenditures.

Public sector only. Incorporates committed but not yet delivered debt relief. Debt relief recorded fully at time of commitment.

Public debt includes promissory note issued by MoF to settle DAB’s Kabul Bank exposure.

In months of next year’s import of goods and services.

Excluding the narcotics economy.

Comprising mainly current spending.

Defined as domestic revenues minus operating expenditures.

Public sector only. Incorporates committed but not yet delivered debt relief. Debt relief recorded fully at time of commitment.

Public debt includes promissory note issued by MoF to settle DAB’s Kabul Bank exposure.

In months of next year’s import of goods and services.

1

The ECF is a lending arrangement that provides sustained program engagement over the medium to long term in case of protracted balance of payments problems. Details on Islamic Republic of Afghanistan’s arrangement are available at www.imf.org/external/country/AFG.

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