Abstract
This paper discusses key findings of the Fourth Review Under the Poverty Reduction and Growth Facility (PRGF) for Afghanistan and a Request for Waiver of Performance Criterion. Program performance during the second half of 2007/08 fell short of expectations. The performance criterion on fiscal revenue was missed, and the authorities fell behind on several program commitments. For 2008/09, real GDP growth is projected to moderate to 7.5 percent and inflation to decelerate to 15½ percent by year’s end.
1. This statement summarizes information that became available since the issuance of the staff report on June 23, 2008, concerning the implementation of the three prior actions. It also provides an update on the Kabul CPI in June 2008.
2. Two of the three prior actions have already been met. These include: (i) the prior action calling for the issuance by the Ministry of Finance (MOF) of an instruction to the Afghan Customs Department to ensure timely updates of reference prices for petroleum products; and (ii) the prior action consisting of the signing by MOF and the Ministry of Commerce and Industry of a memorandum of understanding to clarify customs procedures for fuel products stored at the Fuel and Liquid Gas Enterprise.
3. The third prior action calling for the collection by the MOF of at least Af 79 million corresponding to on the business receipt tax (BRT) and nontax receipts (landing/parking right fees) from airlines has not yet been met. As of July 2, 2008, the authorities reported having collected Af 69.3 million and provided staff with documents confirming this amount. The documentation provided by the authorities, although not fully complete, confirms that the payments were made by the airlines or on their behalf.1 Moreover, the MOF’s Revenue Department informed the staff that the amounts collected correspond to the tax and nontax liabilities accrued by the eligible entities during the period prior to the end of the third quarter of 2007/08. The authorities have arranged for an additional Af 10.5 million (about US$200,000) to be collected from two airlines before the July 7, 2008 Board meeting.
4. Inflation in June receded significantly, mainly on account of a fall in prices of bread and cereal (14 percent), following two months of unprecedented growth. The CPI for Kabul showed a 6 percent decline relative to May 2008. As a result, year-on-year inflation subsided from 43 percent in May 2008 to 33 percent in June 2008. Food prices declined by 9 percent, while nonfood prices rose by 1.4 percent, owing mainly to an increase in prices of transportation services.
A large portion of the eligible liabilities was netted out against the transfers made by the Ministry of Hajj, totaling Af 30.4 million, to cover the overdue payments for services provided by one of the airlines.