Islamic Republic of Afghanistan
Fifth Review Under the Three-Year Arrangement Under the Poverty Reduction and Growth Facility and Request for Waiver of Performance Criteria, and Rephasing and Extension of the Arrangement: Staff Report; Staff Statement; Press Release on the Executive Board Discussion; and Statement by the Executive Director for Islamic Republic of Afghanistan
Author: International Monetary Fund
Publication Date:
01 May 2009
eISBN:
9781451800418
Language:
English
Keywords:
ISCR; CR; food inflation; staff appraisal; PRGF loan; IMF staff representative; headline inflation; U.S. dollar; operating budget; foreign currency; electricity company; financial situation; Currencies
Download PDF (754.6 KB)

This paper discusses key findings of the Fifth Review for Afghanistan under the Poverty Reduction and Growth Facility (PRGF). Performance under the PRGF-supported program has been mixed. Monetary and financial policies were broadly consistent with the program. However, difficulties were evident in reforming public enterprises and in the fiscal area. The economic program for 2009/10 envisages a prudent monetary policy to ensure fast disinflation, fiscal adjustment anchored on remedial measures to increase revenues and contain spending, and closer monitoring of public enterprises that pose fiscal risks.

Abstract

This paper discusses key findings of the Fifth Review for Afghanistan under the Poverty Reduction and Growth Facility (PRGF). Performance under the PRGF-supported program has been mixed. Monetary and financial policies were broadly consistent with the program. However, difficulties were evident in reforming public enterprises and in the fiscal area. The economic program for 2009/10 envisages a prudent monetary policy to ensure fast disinflation, fiscal adjustment anchored on remedial measures to increase revenues and contain spending, and closer monitoring of public enterprises that pose fiscal risks.

I. Introduction

1. Afghanistan faces enormous economic challenges, most notably to rebuild and reform its institutions, put its financing onto a sustainable path, and lay the foundation for growth and poverty reduction. This task has become increasingly difficult because of the growing insurgency and corruption. Social and economic conditions have improved in recent years, but poverty remains widespread, public enterprises pose fiscal risks, weak institutions and enforcement deter investment and deprive the government of resources, and domestic revenues cover one-third of public spending.

2. Afghanistan’s economic program, supported by the Poverty Reduction and Growth Facility (PRGF), seeks to address these challenges by strengthening key economic institutions and governance and reforming public enterprises while ensuring economic stability and low inflation.1 Afghanistan also participates in the Heavily Indebted Poor Countries (HIPC) Initiative. Satisfactory implementation of the program and other conditions for debt relief will allow for the cancellation of nearly 100 percent of Afghanistan’s foreign debt.

3. The IMF Executive Board concluded the Fourth Review under the PRGF arrangement on July 7, 2008. At that time, Executive Directors encouraged the authorities to focus monetary policy on containing the inflationary impact of higher fuel and food prices and to proceed with reforms of key public enterprises. Directors also stressed the importance of implementing revenue-enhancing measures to prevent continued aid dependence and achieve fiscal sustainability over the long term.

4. Discussions on the Fifth Review were held in Kabul during December 2–16, 2008 and January 25–February 3, 2009.2 In the attached Letter of Intent and Supplementary Memorandum of Economic and Financial Policies (Attachments I and II), the authorities request the completion of the Fifth Review and describe the policy framework for the 2009/10 fiscal year (March 21, 2009–March 20, 2010). The authorities also request an extension of the arrangement to March 2010 and a rephasing of disbursements to allow them more time to implement pending reforms and reach the completion point under the HIPC Initiative.

II. Recent Developments and Performance under the Program

5. Security has been deteriorating and the political environment surrounding the program has become increasingly complex. The number of security incidents rose dramatically in 2008 and the government has been losing control in many provinces. Opposition from vested interests and governance problems have hampered policy implementation, especially in reforming customs administration and public enterprises. Presidential elections are scheduled for August 20, 2009.

uA01fig01

Number of Security Incidents per Month 1/

Citation: IMF Staff Country Reports 2009, 135; 10.5089/9781451800418.002.A001

Source: United Nations Department of Safety and Security1/Attacks and serious beating incidents perpetrated by anti government elements throughout Afghanistan. They include suicide and stand off attacks; bombings; attacks on district centers, aid and military convoys and their contractors; night letters; assasinations; illegal check points and beatings.

6. In 2008, a drought and higher commodity prices reduced growth and drove up inflation. Staff estimates that economic growth fell to about 3 percent in 2008/09 compared to 12 percent in 2007/08, mainly reflecting a sharp decline in agricultural output (Table 2).3 Outside the formal sector, the United Nations estimates that opium production fell because of low opium prices and efforts to discourage poppy production.4 The drought (which affected mainly cereals) and restrictions on wheat exports by regional trading partners added to domestic food price pressures and combined with higher fuel prices to push the 12-month rate of inflation to a peak of 43 percent in May 2008. Lower world prices since then allowed inflation to fall to 9 percent in February 2009. The external current account balance worsened because of emergency wheat imports (Table 3).

uA01fig02

Real GDP Growth (in percent)

Citation: IMF Staff Country Reports 2009, 135; 10.5089/9781451800418.002.A001

uA01fig03

Consumer Price Inflation

(year on year change, in percent)

Citation: IMF Staff Country Reports 2009, 135; 10.5089/9781451800418.002.A001

7. The fiscal outturn was worse than projected due to a weak revenue performance and higher spending. The revenue-to-GDP ratio fell and operating expenditures were higher than projected (Table 4).5 Preliminary estimates show that, despite higher than expected grants to the operating budget, the operating balance including grants in 2008/09 recorded a deficit of 1.1 percent of GDP, compared to a 0.5 percent surplus under the program. The overall budget balance also appears to have worsened by as much as 2.3 percent of GDP, and discretionary cash balances to have fallen from 0.8 percent of GDP 2007/08 to 0.2 percent in 2008/09.6

Fiscal Performance

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Source: Afghan authorities and Fund staff estimates.

8. Revenue performance faltered because of governance problems at customs. Taxes on goods and services posted strong growth, mainly because of the strengthening of large taxpayers’ offices (end-September 2008 structural benchmark). However, collection in regional offices was flat, and customs collection during the first three quarters of 2008/09 was lower than in the same period in 2007/08 despite higher import volumes. Collection turned around during January–March 2009, but not enough to affect the year total.7 Worsening security affected collection but governance problems played the key role, especially in relation to fuel imports handled by the state fuel company.

9. Additional public spending was needed to cover unexpected outlays on food, education, and defense. The midyear budget review provided for emergency wheat imports, higher teachers’ salaries, additional military spending, and the settlement of education wage arrears. Wheat imports are not expected to recur in 2009/10. The teachers’ salary increases are part of the accelerated implementation of a “pay and grade” reform already incorporated in the medium-term framework.

10. Monetary policy was in line with the program and the Afghani remained broadly stable. The growth of currency in circulation was kept within program ceilings. Reserve money exceeded the targets due to large deposits in the central bank from a commercial bank that handles coalition forces’ expenditures (Table 5). To strengthen control over monetary aggregates, the central bank continued to foster the market for capital notes (central bank bills) and developed an electronic registry (end-September 2008 structural benchmark) to pave the way for a secondary market.8 The Afghani has remained broadly stable, depreciating slightly vis-à-vis the U.S. dollar but appreciating in trade-weighted terms.

uA01fig04

Monetary Aggregates (in billions of Afghanis)

Citation: IMF Staff Country Reports 2009, 135; 10.5089/9781451800418.002.A001

uA01fig05

Exchange Rate Indices (March 2005 = 100) 1/

Citation: IMF Staff Country Reports 2009, 135; 10.5089/9781451800418.002.A001

1/An increase denotes appreciation of Afghani

11. Except for some fiscal targets, all other quantitative performance criteria were observed. Reserve accumulation exceeded the program targets, and all the other performance criteria under central bank’s responsibility and the debt-related provisions were observed (Table 6). However, the end-September performance criterion on domestic revenues was not observed. Based on preliminary estimates, growing fiscal slippages led to a larger deviation from the end-March 2009 performance criterion on domestic revenues and also resulted in a deviation from the end-March 2009 limit on central bank financing of the government. A new set of targets for June 2009 is proposed below for the Sixth Review.

12. Financial supervision has been strengthened. The central bank intervened in a small insolvent private bank in November 2008 and subsequently tightened the definitions governing reserve requirements to ensure that all banks had sufficient liquidity. In addition, the central bank increased the number of bank supervisors, boosted salaries to encourage retention, separated onsite and offsite functions, and doubled the frequency of onsite examinations.9 It also started implementing an action plan developed in September 2008 (structural benchmark) to address weaknesses in the legal framework as identified in a self-assessment of the Basel Core Principles for Effective Banking Supervision.

13. The central bank has been proceeding with internal reforms. Starting in October 2008, monetary data have been compiled from the accounting system in line with technical assistance recommendations. However, the central bank concluded that it was impracticable to produce a monetary survey using a unified timeframe (end-June 2008 structural benchmark) and has subsequently reached understandings with commercial banks to ensure concordance among key data.10

14. Reform of public enterprises has been slow. The authorities rejected the sole bid for the privatization of the telephone company, and no subsequent offer has been made. Parliament amended the State-Owned Enterprise Law to stipulate that its approval would in the future be required for any restructuring or liquidation of public enterprises and, citing this provision, objected to the liquidation of a small defunct state-owned bank. The state electricity company exhausted its annual fuel subsidy halfway through the fiscal year. As a result, donors had to redirect an amount equivalent to 0.2 percent of GDP from development assistance to support the company through the remainder of the year. Since then, the Ministry of Finance has prepared a medium-term action plan to reduce electricity subsidies (end-December 2008 structural benchmark).

15. The record of implementation of the structural agenda has been mixed. The audited statements of the state electricity company (end-September 2008 performance criterion) were submitted in March 2009 and four of the nine structural benchmarks scheduled for implementation under the Fifth Review have been delayed (Table 7). Two of the delayed benchmarks have now been implemented, and the remaining two (the external audits of the state fuel company and the review of relations between the government and key public enterprises) have been rescheduled for implementation under the Sixth and Seventh Reviews, respectively.11

III. Policy Discussions

16. The authorities concurred on the need to redress policy slippages, ensure macroeconomic stability, and implement HIPC commitments. The discussions focused on measures to increase revenues and strengthen fiscal governance, to strengthen surveillance of key public enterprises, and to tighten monetary policy to lower inflation.

A. Economic Outlook

17. The program for 2009/10 envisages a recovery in output and a reduction in inflation. The global crisis is not expected to have a large impact on Afghanistan’s economy given the country’s limited trade and financial links and its reliance on agriculture. Agriculture is expected to recover with improved weather, but global conditions are expected to cut the growth of industry and services from 13 percent in 2008/09 to 7 percent this year, leading to an overall GDP growth rate of 9 percent. Inflation is targeted to be 6 percent or less. The external current account balance is likely to worsen somewhat due to the impact of global conditions on foreign aid, remittances, and exports. In the medium term, mining and services are projected to increase their contribution to growth.

B. Fiscal Issues

18. The program targets a lower fiscal deficit in 2009/10. Revenues and grants for operating expenditures are projected to increase by 0.6 percent and 0.3 percent of GDP, respectively (Table 4). As operating expenditures are expected to decrease slightly, the deficit including grants is expected to decline from 1.1 percent of GDP in 2008/09 to near zero in 2009/10. Excluding grants, the operating budget deficit would fall from 5.5 percent of GDP to 4.7 percent.12

19. In March 2009, the authorities implemented three prior actions for the completion of the Fifth Review. These measures and their rationales are as follows: (i) submitting audited financial statements of the state electricity company (to mitigate quasifiscal risks); (ii) amending income tax legislation to introduce the business receipts tax (an embryonic VAT) on imports (to broaden the tax base); and (iii) ensuring that customs officials have access to the state fuel company depots in Hairatan (to improve customs collection and governance) and preparing a report documenting such access.

20. The program envisages additional revenue measures to boost collection and improve administration (Attachment II, paragraphs 17-19). The authorities have recently pursued administrative reforms including personnel changes, which have contributed to a turnaround in revenue performance since December 2008. The additional measures are:

  • extending the use of the Automated System for Customs Data (ASYCUDA) modules to Kabul airport and some provinces (benchmark for April 2009);

  • extending the large tax payers offices to two more provinces (staff recommended that the new offices be under the control of headquarters to ensure their success);

  • preparing an action plan to enhance the responsibility of the tax and customs departments for human and financial resources;

  • setting up post-clearance audit units at two important border posts (Jalalabad and Mazar-e-Sharif) (benchmark for May 2009) and establishing continuous customs controls at private fuel depots; and

  • monitoring collection of the business receipts tax on imports (structural benchmark for June 2009).

21. The overall fiscal envelope is contained and spending priorities are in line with the Afghanistan National Development Strategy (ANDS). For 2009/10, the expenditure envelope will be largely determined by domestic revenues and grants, with minimal financing from central bank deposits and foreign loans (Table 4). The main increases in spending are for wages and items related to defense, health, and education. To enhance the capacity to identify and prevent arrears, the authorities intend to focus on cash planning and management through credible spending ceilings and improved accounting and recording.

22. The authorities agreed on the need to address fiscal risks from key public enterprises. Despite several delays, the audits of the state fuel company are expected to be completed by June 2009 and a thorough review of the financial situation of key public enterprises (the state airline Ariana, the state electricity company, Afghan Telecom, and the state fuel company) should be finalized by January 2010. The medium-term goal is to regularize these companies’ fiscal relations with the government, adopt modern corporate governance, and proceed with their divestiture, restructuring, or privatization.13 The authorities agreed that it would be useful to bring public enterprises under one oversight body in the Ministry of Finance, but indicated that they need more time to consider such a measure. With regard to the new requirement for Parliamentary approval for restructuring or liquidating public enterprises (¶14), the authorities interpreted that defunct state-owned banks are subject to the Commercial Code, not the amended State-Owned Enterprise Law. Staff recommended that this requirement be clarified to avoid undue delays in the process.

C. Monetary and Financial Sector Issues

23. The monetary program aims at reducing inflation to 6 percent by March 2010. Having accommodated the impact of high food and fuel prices in 2008, the central bank intends to lock in the recent decrease in world food and fuel prices by cutting monetary growth. In 2009/10, reserve money is expected to grow by 17 percent, compared to 35 percent in 2008/09. To attain its monetary targets, the central bank plans to intensify the use of capital notes and continue promoting the secondary market for these notes.

24. The program targets a modest buildup of international reserves and assumes a managed floating exchange rate. Net international reserves are programmed to increase by US$200 million, allowing import coverage to remain at a comfortable level of about 11 months of imports. The central bank envisages conducting foreign exchange market interventions mainly to smooth market volatility, but not to resist underlying trends.

25. The central bank plans to proceed with financial sector reforms. Staff noted that the rapid increase of the banking system warrants continuing vigilance and further strengthening of the central bank’s supervisory capacity. The authorities concurred and pointed out that they intend to automate offsite examinations through information technology and to supplement the examination of banks with low CAMEL ratings with targeted examinations. There are also plans to introduce a credit bureau and a collateral registry (with World Bank assistance), and a limited deposit insurance scheme geared toward small depositors.

D. External Sector and Debt

26. The external current account balance is projected to worsen in 2009/10. Projections for exports and transit trade have been lowered in line with the deteriorating global outlook. In the medium term, the current account deficit is not likely to decline, although import demand should shift to investment goods as security improves and the new copper mine (Aynak) is set up to begin operations (Table 8).

27. The HIPC completion point could take place during the fourth quarter of 2009. This will require the completion of the Sixth Review and meeting the HIPC triggers.14 Afghanistan’s main bilateral creditors (the United States, Germany, and Russia) have committed to provide 100 percent debt relief, which is beyond what is required under the Enhanced HIPC initiative.15 The authorities have expressed their commitment to implement the HIPC triggers in the remainder of this year (Box 1).

Status of HIPC Completion Point Triggers

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Sources: Afghan authorities and World Bank and Fund staff.

IV. Program Monitoring

28. The authorities are requesting an extension of the PRGF arrangement through March 2010. The extension will allow the authorities more time to implement pending reforms and to demonstrate their continued commitment to economic stability. The authorities are also requesting the inclusion of a Seventh Review based on end-December 2009 data and other measures. To accommodate the additional program disbursement, the seventh disbursement, linked to the Sixth Review, will be split in two. An extension request for the Paris Club arrangement (for which a current PRGF arrangement is required) will be made following the completion of the Fifth Review.

29. The Sixth and Seventh Reviews will track progress in the program’s pressing priorities, namely fiscal sustainability, revenue collection and related governance issues, and fiscal risks from public enterprises. Structural benchmarks have been set accordingly, as specified in the Supplementary Memorandum of Economic and Financial Policies and in the Technical Memorandum of Understanding (Attachment 2, Table 2, and Attachment III). Quantitative performance criteria for the Sixth Review will be based on end-June 2009 data (Attachment II, Table 1). Staff is also proposing quantitative performance criteria for the Seventh Review with an end-December 2009 test date (Attachment II, Table 1). The structural benchmarks for the Seventh Review will be revisited at the time of the Sixth Review (Attachment II, Table 2).

Table 1.

Islamic Republic of Afghanistan: Schedule of Reviews and Disbursements

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Source: Fund staff estimates.

Does not sum due to rounding.

Due to domestic legal obstacles, the first disbursement was drawn with a delay, on January 19, 2007.

The First Review was completed on March 7, 2007 and the second disbursement was drawn on March 29, 2007.

The Second Review was completed on July 9, 2007 and the third disbursement was drawn on July 23, 2007.

The Third Review was completed on February 14, 2008 and the fourth disbursement was drawn on February 28, 2008.

The Fourth Review was completed on July 7, 2008 and the fifth disbursement was drawn on July 15, 2008.

The board meeting on the Fifth Review is tentatively scheduled for April 2009.

The board meeting on the Sixth Review is expected in September 2009, along with the HIPC completion point.

The board meeting on the Seventh Review is expected in March 2010.

Table 2.

Islamic Republic of Afghanistan: Selected Economic Indicators, 2005/06–2009/10

(Quota: SDR 161.9 million)

(Population: 26.7 million; 2006/07)

(Per capita GDP: US$289; 2006/07)

(Poverty rate: n.a.)

(Main export: carpets, US$186 million; 2006/07)

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Sources: Afghan authorities; United Nations Office on Drugs and Crime; and Fund staff estimates and projections.

Excluding the drug economy.

Kabul only.

Excluding development spending and externally financed development expenditures.

After HIPC and MDRI debt relief as well as debt relief beyond HIPC relief from Paris Club creditors. Debt also includes obligations to the IMF.

The 2008/09 number is for March 10, 2009.

Includes official recorded exports plus staff estimates of smuggling; excludes reexports.

In U.S. dollars, percentage change.

In months of next year’s imports of goods and services, excluding imports for reexports and duty-free imports by donors.

The latest actual data: February 2009 for the Afghani per U.S. dollar and December 2008 for real effective exchange rate.

The 2008/09 figure is for February 2009.

V. Staff Appraisal

30. Against the backdrop of serious security challenges, Afghanistan’s performance under the program was mixed. On one hand, the authorities have pursued prudent financial sector policies and are resolved to lower inflation after a sharp increase in food and fuel prices. On the other hand, revenue performance, a key feature of the PRGF arrangement, was weaker than expected and a number of structural reforms were delayed. The envisaged date when domestic revenues would cover operating expenditures has been pushed back by one year.

31. The economic program for 2009/10 aims at consolidating achievements, redressing slippages, and proceeding with much-needed reforms. The conduct of monetary policy and recent inflation data are encouraging, but the success of the program will also hinge on adherence to the fiscal targets and pressing ahead with reforms to boost revenues and reduce fiscal risks from public enterprises. Staff therefore urges the authorities to adhere to their goal of a balanced budget including grants and welcomes their commitment to cut expenditures should revenues fall short of programmed levels. Furthermore, the staff encourages the authorities to undertake all necessary actions to ensure a sustained increase in revenues and to use the medium-term fiscal framework as a planning tool. Since substantial outlays will be required in the next decade to rebuild the country and meet poverty-reduction goals, increased revenue collection will be critical to reduce aid dependency.

32. Staff urges the authorities to advance reforms in revenue administration and deal with pervasive corruption. Key reforms comprise collecting the business receipts tax on imports, establishing effective customs controls on the state fuel company and on private fuel depots, and further automating operations and expanding post-clearance audits at customs. Staff welcomes the extension of the large taxpayers’ office to more provinces and encourages the authorities to proceed with their plan to establish medium taxpayers’ offices. It will also be important for the revenue departments to enjoy more autonomy in financial and human resources management.

33. A cautious approach to public spending and cash management to avoid arrears will also be critical. Increased military spending is essential in the current environment, and the authorities should ensure that these increases are fully financed by donors. The authorities should be similarly cautious in implementing civil service salary reforms to prevent unsustainable increases in operating expenditures. To avoid expenditure arrears, staff urges the authorities to build up discretionary cash balances of at least two weeks of operating expenditures or 0.5 percent of GDP.

34. Monetary policy appropriately focuses on disinflation. Staff concurs with the authorities’ objective of reducing inflation to 6 percent or less. Inflation trends should be closely monitored and monetary policy adjusted accordingly if inflation does not remain anchored at low levels. At the same time, the authorities should maintain a managed floating exchange rate policy to buffer the economy from real shocks and support the implementation of monetary policy. Monetary policy operations will also be enhanced by the development of the secondary market for capital notes.

35. The central bank is expected to step up the monitoring of commercial banks. Afghanistan’s linkages to global financial markets are believed to be fairly limited, nonperforming loan ratios remain low, and the intervention of a small bank in November 2008 went smoothly. However, the continuing rapid expansion of commercial banks and lending highlights the need to strengthen supervision and fully enforce prudential norms, especially on state-owned banks.

36. Public enterprises continue to pose fiscal risks and should be closely monitored. Financial data on the largest public enterprises remain inadequate, governance problems abound, and progress to reform these companies has been scant. Staff urges the authorities to complete the audits of the state fuel company and privatize it without delay and to strengthen control of the operations of the state electricity company. There is also a need to bring all public enterprises under one oversight body in the Ministry of Finance, finalize the review of fiscal relations of key public enterprises; prepare business plans; and move ahead with their restructuring, divestiture, or privatization. Lastly, staff urges the authorities to seek a clarification of the requirement under the amended State-Owned Enterprise Law that Parliamentary approval is needed for the privatization of public enterprises and liquidation of state-owned banks.

37. The program is exposed to various risks, most notably a volatile security situation or political turmoil as the presidential election approaches. Notwithstanding these risks, it remains important to redouble efforts to maintain fiscal discipline, take a strong stance against corruption, and implement the envisaged reforms. Successful implementation of the program and of other HIPC conditions will allow Afghanistan to obtain near-100 percent debt relief under the HIPC Initiative and the MDRI.

38. Based on the implementation of the agreed prior actions, the recent turnaround in revenue collection, and the strength of the 2009/10 program, staff supports the waivers of nonobservance of performance criteria and the completion of the Fifth Review. Staff also supports the extension of the arrangement and the rephasing of disbursements.

Figure 1.
Figure 1.

Islamic Republic of Afghanistan: Output, Inflation, and External Sector Developments

Citation: IMF Staff Country Reports 2009, 135; 10.5089/9781451800418.002.A001

Source: Da Afghanistan Bank, Central Statistical Office; and Fund staff estimates.
Figure 2.
Figure 2.

Islamic Republic of Afghanistan: Fiscal Developments

Citation: IMF Staff Country Reports 2009, 135; 10.5089/9781451800418.002.A001

Source: Ministry of Finance; and Fund staff estimates.1/ The operating balance includes only operating expenditures; the core balance includes both operating and development expenditures.2/ Fiscal sustainability is defined in the program as a zero operating balance excluding grants.
Figure 3.
Figure 3.

lslamic Republic of Afghanistan: Monetary and Financial Developments

Citation: IMF Staff Country Reports 2009, 135; 10.5089/9781451800418.002.A001

Source: Da Alqhanistan Bank (DAB), and Fund staff estimates.
Table 3.

Islamic Republic of Afghanistan: Balance of Payments, 2005/06-2009/10

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Sources: Afghan authorities; and Fund staff estimates and projections.

Excludes opium exports and, due to limited data availability, flows associated with U.S. Army and most ISAF activities.

Debt service projections are based on the total stock of external debt (including estimates of unverified arrears). Interest on overdue obligations represents estimates by Fund staff.

Assumes that Afghanistan will reach the HIPC completion point. Paris Club creditors are assumed to provide 100 percent debt stock reduction.

Arrears shown represent Fund staff estimates of debt service due, but not paid, on estimated overdue obligations.

Debt rescheduling includes the capitalization of interset falling due to Paris Club creditors until the completion point, interim assistance from multilateral creditors, and HIPC debt relief from multilateral creditors after the completion point.

Excluding imports for reexports and duty free imports by donors.

After HIPC and MDRI relief as well as debt relief beyond HIPC from Paris Club creditors. Debt includes obligations to the IMF. The debt stock includes the capitalization of interest to Paris Club creditors until the completion point of the enhanced HIPC initiative.

Table 4a.

Islamic Republic of Afghanistan: Core Budget, 2005/06-2009/10 1/

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Table 4b.

Islamic Republic of Afghanistan: Core Budget, 2005/06-2009/10 1/

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Sources: Ministry of Finance; Da Afghanistan Bank; and Fund staff estimates and projections.

Reflects the accounts of the central government, and does not include spending on public goods financed by donors outside the budget.

Funding for operating budget from multidonor trust funds: The Afghanistan Reconstruction Trust Fund (ARTF; recurrent window) and the Law and Order Trust Fund for Afghanistan (LOTFA).

Interim Afghanistan National Development Strategy programs.

Variation between the fiscal position recorded at the Ministry of Finance and the central bank. This discrepancy is partly due to the difference (“float”) between checks issued and checks cashed.

In 2005/06 and 2006/07 includes US$40 million receipt from sale of telecommunications spectrum bandwidth and late overflight paymens. From 2007/08 includes sale of land and buildings and privatization receipts.

Net change in government deposits with the central bank (excluding provincial branch balances). A positive sign corresponds to a decline in balances.

Government deposits at the central bank excluding earmarked grants.

Estimated direct expenditures by donors on public projects not included in the core budget.

To be applied as an adjustors to the program depending on the Afghan National Army exceeding 109,000.

Table 5.

Islamic Republic of Afghanistan: Monetary Program (Central Bank), 2007/08-2009/10

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Sources: Da Afghanistan Bank (DAB) and Central Statistics Office; and Fund staff estimates and projections.

Foreign currency-denominated components evaluated using the actual exchange rates at date indicated.

Foreign currency-denominated components evaluated using applicable program exchange rates as of March 19, 2008.

Foreign currency-denominated components evaluated using applicable program exchange rates as of December 20, 2008.

Weighted average of bid rates; 30-day notes until March 2006.

Table 6.

Islamic Republic of Afghanistan: Quantitative Performance Criteria and Indicative Targets under the PRGF Arrangement, 2008/09 1/

(Cumulative changes from March 19, 2008; unless otherwise indicated)

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Source: Fund staff estimates.

The performance criteria and indicative targets envisaged under the program, and their adjustors, are defined in Attachment III of Country Report 08/229.

These performance criteria apply on a continuous basis.

Defined in Paragraph 21 of Attachment III of Country Report 08/229.