Islamic Republic of Afghanistan: Staff Report for the 2015 Article IV Consultation and the First Review Under the Staff-Monitored Program

International Monetary Fund. Middle East and Central Asia Dept.

doi:10.5089/9781513592817.002.A001

Author: International Monetary Fund. Middle East and Central Asia Dept.

Publication Date:: 01 Dec 2015

eISBN:: 9781513592817

Language:: English

Keywords:: ISCR; CR; envisaged budget surplus; opium production; surplus; government; government effectiveness; unity government; exchange rate; authorities interconnection; government deposit; Securities; Anti-money laundering and combating the financing of terrorism (AML/CFT); Currencies; South Asia; Global; Middle East

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This 2015 Article IV Consultation highlights that Afghanistan remains a poor fragile state that is far from self-reliance. Significant fiscal and banking vulnerabilities emerged in 2014. Domestic revenue collection fell below its 2013 level because of lower growth, declining imports, and lower compliance, while operating expenditure increased. The treasury cash balance fell to dangerously low levels in the second half of 2014, and domestic payment arrears and unfunded allotments emerged. The future path of the economy is highly dependent on the authorities' delivering on their economic reform commitments, continued donor support, and improvements in security.

Abstract

Context

1. Afghanistan is at an inflection point that will shape the country’s landscape for the years ahead. Since 2002, large aid flows supported reconstruction and growth and Afghanistan has made important strides in building its economy, infrastructure and institutions. Afghanistan’s Human Development Index (HDI) increased by about 2.5 percent annually between 2000 and 2013, above average HDI growth in South Asia and Sub-Saharan Africa. Notwithstanding this strong progress, Afghanistan has experienced an extended period of political and security uncertainty, which has held back economic activity and, more recently, led to increased emigration.

2. Afghanistan remains a poor fragile state far from self-reliance; donor grants finance the budget and external current account deficits. Afghanistan ranks 194 out of 213 countries by GNI per capita in 2013 (World Bank Atlas method). A large illicit narcotics sector, difficult security conditions, corruption and weak institutions undermine development, constrain growth, and weigh on poverty reduction.

3. Afghanistan had its first democratic transfer of political power in 2014. The new national unity government wishes to tackle Afghanistan’s challenges. At the December 2014 London Conference, the international community welcomed plans to enhance productivity, stimulate private sector-led growth and mobilize domestic revenue, and reaffirmed their engagement with Afghanistan. The authorities committed to deliver on their commitments ahead of the September 5, 2015 Senior Officials Meeting (SOM).¹

4. IMF management approved a Staff-Monitored Program (SMP) for Afghanistan in May 2015. The SMP (April–December 2015) aims at addressing fiscal and banking vulnerabilities, preserving macroeconomic stability, laying the ground for inclusive growth, and building a track record for a future IMF financial arrangement.

Recent Developments

5. Political and security uncertainties have been a drag on economic activity. The security situation has become increasingly difficult. At the same time, there were delays in the formation of a full administration. These developments made policy making harder, slowed the economic recovery, and contributed to increased emigration in recent months. Apart from agriculture, economic activity has been subdued. In 2014, real GDP growth declined to 1.3 percent and end-period inflation fell to 1.4 percent y-o-y. Inflation declined further to -1.9 percent y-o-y in September 2015, reflecting soft economic activity and lower global fuel and food prices.

6. Significant fiscal vulnerabilities emerged in 2014. Domestic revenue collection fell below its 2013 level because of lower growth, declining imports, and lower compliance. Operating expenditure increased, as off-budget security-related spending was moved on budget (with donor grant financing), and because of new benefits for families of martyrs and disabled people. The government had to reduce discretionary development and operating and maintenance (O&M) spending. The treasury cash balance fell to dangerously low levels in the second half of 2014 and domestic payment arrears and unfunded allotments emerged.

7. Donor support and policy actions under the SMP helped address these vulnerabilities in 2015. Despite weak economic activity and limited revenue from new measures, domestic revenues increased by 15 percent (to Af 81 billion) in the first 9 months of 2015 because of improved domestic tax and customs compliance. Tariff increases introduced in April, however, yielded less than projected as traders cut back their import orders. While the operating budget execution underperformed, owing to delays in budget approval and centralization of procurement, development expenditure was as programmed, with 2014 arrears repaid. As a result, the operating deficit, before grants, was lower than projected, but with lower-than-projected grant financing, the overall balance recorded a smaller than projected surplus at end-September. The treasury’s cash balance was boosted above Af 10bn by grants from the U.S. and U.K.

8. After accommodative monetary policy in 2014, monetary growth declined in 2015. In 2014, the Da Afghanistan Bank (DAB) did not sterilize the substantial drawdown of government deposits. In 2015, the accumulation of government deposits at DAB, lower confidence (and associated capital outflows), and seasonal factors reduced reserve money growth. Broad money growth was also low, due to weak confidence and the impact of bank restructuring measures. DAB maintained a comfortable reserve buffer, at 7½ months of imports. In July and August, downward pressure on the Afghani increased and reserves were lost, as higher emigration boosted foreign exchange demand.

Box 1.

The Impact of Accelerating Emigration

Background. According to the 2014 UNHCR Regional Overview, after more than three decades of displacement, Afghan refugees still constituted over 21 per cent of the global refugee population and 40 percent of the world’s protracted caseload. In addition, there are a large number of undocumented Afghans residing abroad, of which at least 2 million in Iran and Pakistan. Since 2002, over 5.8 million Afghan refugees have returned home voluntarily, but, in recent years, voluntary return has decreased significantly, hitting a historical low in 2013–14.

Recent developments. The difficult economic and security conditions and uncertainties continue to affect the decision to return by Afghan refugees and, in some cases, induce reverse movements. Whereas attacks by insurgents have been ongoing during past years, they have recently escalated, especially in the north of the country. Moreover, there are reports of criminal activity (particularly kidnapping). Anecdotal evidence indicates the number of emigrants to countries in the region and beyond has risen in 2015, accelerating over the past few months. There are reports of a sharp increase in the number of passport applications from the start of the year, of coaches reaching the Iranian borders, and of asylum requests in EU countries.

Policy challenges. The most visible short-term challenge results from emigrants’ attempts to liquidate their assets before leaving Afghanistan, which has increased substantially the demand for foreign currency; DAB has met this increased demand partly through sale of foreign exchange and partly vented through depreciation of the exchange rate. While data on the level of extra demand for hard currency cash are not available, it is likely that each migrant nucleus would seek to gather between $5,000 and $10,000 on average. This higher demand for foreign exchange, if sustained, will likely put downward pressure on DAB’s international reserves position, with the risk of eroding confidence in macroeconomic stability. Further, it may give rise to pressure for additional budget expenditure to incentivize potential migrants to stay in Afghanistan. In addition, departures of emigrants, especially if well educated, will affect Afghanistan’s human capital base and labor force skills. In the context of inelastic public expenditure due to large security and development spending needs, budget revenue losses related to emigrants may also create fiscal pressures.

IMF’s role. By assisting the authorities to maintain economic stability, reduce vulnerabilities, improve the business climate, and promote inclusive growth, the IMF is working with the Afghan authorities to create conditions for a sustainable and voluntary reintegration of those who have left and an incentive to stay for those who have not. In this context, the Fund will continue to be flexible with program design to reflect unanticipated shocks and speed of policy implementation, and partner with the donor community with a view to supporting the authorities’ efforts to build a resilient, vibrant, and successful economy and, if needed, to mobilize donor financing to the budget to help deal with fiscal costs of emigrants.

9. Banking sector vulnerabilities emerged in 2014. Weak governance and regulatory forbearance in 2014 led to a deterioration in the financial positions of some banks. Seven of the 15 banks were classified as weak (rated 4 or 5 according to CAMEL methodology) and hold 50 percent of bank assets. Two important banks were in hazardous conditions. In late 2014, corrective measures started to be implemented and in 2015, enforcement actions against all weak banks were in place and decisive actions were taken to strengthen the two vulnerable banks.

Box 2.

The Authorities’ Response to Past IMF Advice

Past IMF advice has focused on the overall macroeconomic policy mix, tax policy and tax administration, strengthening banking supervision, exchange rate flexibility, and improving economic governance by enacting antimoney laundering (AML), countering financing of terrorism (CFT), banking and central bank legislation. While the main economic strategy has not changed, Fund staff has been willing to delay meeting some of the structural benchmarks because of capacity constraints. The authorities have been broadly responsive to Fund advice, but the prolonged political transition resulted in delayed or incomplete implementation of some macroeconomic policies and reforms.

The authorities have maintained macroeconomic stability but fiscal and monetary policy advice was not fully followed. As a result, fiscal performance deteriorated and reserve money targets were missed in 2014. Operating expenditures increased despite the deterioration in domestic revenue collection, and the treasury cash balance dropped to dangerously low levels while domestic budgetary arrears emerged. The authorities have increased their reserve buffers in 2014 and the exchange rate against the U.S. dollar was broadly stable. The authorities allowed for more exchange rate flexibility in 2015.

Domestic revenue collection fell short of targets in 2014 but recovered in the first half of 2015. Domestic revenue collection slipped to 8.5 percent of GDP in 2014 from 11 percent in 2011. Budget revenue has started to recover in the 2015, as compliance efforts were stepped up. On tax reform, the authorities have implemented revenue measures under the SMP, but the introduction of some measures was delayed. VAT introduction was postponed in response to the authorities’ concerns and staff’s assessment that the tax administration needed time to prepare for a successful VAT introduction.

The authorities have taken action to strengthen the financial sector. DAB stepped up its supervision efforts in the second half of 2014 and took action against weak banks including enforcement actions against two vulnerable banks. DAB also approved a strategy of dealing with weak banks with a view to improve banking sector’s CAMEL ratings by February 2016. The authorities have cut losses in New Kabul Bank and initiated its resale. The new banking law has been enacted. Further, DAB continues to implement Financial Supervision Department’s (FSD) five-year strategic plan, launched in July 2013. FSD is also revising banking regulations to implement the new banking law. Amendments to the DAB law are being reviewed by the Ministry of Justice.

The authorities have strengthened the AML/CFT legal framework and reopened Kabul Bank investigation. Amendments to the AML and CFT laws were introduced by presidential decree to improve compliance with Financial Action Task Force (FATF) standards and regulations on AML/CFT measures and fit and proper requirements for the financial sector were issued by DAB. The authorities have also taken measures to improve the regulatory regime to monitor the cross border transportation of currency. A presidential decree was issued to reinvigorate asset recovery efforts and initiated a review of criminal cases in October 2014 that resulted in increased jail terms and fines for two large Kabul Bank shareholders.

10. Kabul Bank asset recovery has continued. A presidential decree was issued in October 2014 to expedite asset recovery and review criminal cases. Between January 31 and August 31, 2015, cash recoveries amounted to $16.9 million bringing total cash recoveries to $191 million.² The authorities continue to follow up on the requests for mutual legal assistance that were sent to a number of foreign jurisdictions to facilitate asset recovery.

11. Important legal reforms for the financial sector were enacted. Amendments to the antimoney laundering (AML) and countering the financing of terrorism (CFT) laws were approved by the President in April 2015.³ The banking law was enacted in August 2015. Further, DAB issued two regulations on AML/CFT measures and fit and proper requirements for the financial sector.

Outlook and Risks

12. The macroeconomic outlook is uncertain. The future path of the economy depends highly on the authorities delivering on their economic reform commitments, continued donor support, and improvements in security. The new government presented its Self-Reliance through Mutual Accountability Framework (SMAF) to donors in September 2015, which puts restoring fiscal sustainability through increasing revenues as one of the main priorities.⁴ Although the initial impact of the drawdown of international troops has ended, economic activity is subdued and investor confidence remains low.

13. The medium-term macroeconomic framework projects a recovery in growth. This path, however, reflects a slower recovery in economic confidence and later implementation of mining projects than projected earlier. Growth is expected to gain steam, with mining related activity, from 2018 onwards, bringing average annual GDP growth to 5 percent during 2016–20. Delivering on commitments under the SMAF and associated donor support should help cover fiscal and external gaps. Inflation is expected to stay in single digits with stable international prices and prudent monetary policy.

Islamic Republic of Afghanistan: Risk Assessment Matrix

^¹Staff assessment of the likelihood of realization in the next three years.

Islamic Republic of Afghanistan: Risk Assessment Matrix

Nature/Source of Risk	Likelihood¹	Expected Economic Impact if Realized	Possible Mitigating Measures
Near-Term Risks
Deteriorating security situation. Stalemate in peace talks with the Taliban.	Medium	High -Increasing security concerns sap investor and consumer confidence with lower growth and excessive volatility of the exchange rate. -Lower growth results in a decline in domestic revenue and a higher fiscal deficit. - High volatility of the exchange rate leads to further dollarization, capital flight and inflationary pressure.	Strengthen fiscal and monetary policies to maintain macroeconomic stability.
A long lasting political agreement is reached with insurgents.	Low	High - A peace settlement will lead to higher confidence, investment, and growth.	Adjust the policy mix to take into account likely higher budget revenue, foreign exchange inflows by allowing for higher spending and possible exchange rate appreciation.
Weak fiscal policy implementation, particularly setbacks in revenue mobilization efforts and difficulties in expenditure and cash management.	High	High - Lower than expected yield from revenue mobilization efforts leads to spending cuts. - Pressing spending needs result in depletion of the treasury cash balances and unfunded allotments lead to arrears.	Increase tax compliance, take measures to mobilize additional revenue, prioritize spending, and improve coordination between the treasury and budget departments.
Acceleration in outflows of migrants.	Medium	Medium - High demand for foreign exchange and downward pressure on the Afghani, with a risk of eroding confidence in the authorities’ ability to maintain macroeconomic stability and lift growth. - Pressure for budget expenditure to incentivize potential emigrants to stay in Afghanistan and/or to encourage refugees to return.	Continue to manage the exchange rate flexibly, seek to improve security, and mobilize donor financing to incentivize potential emigrants to stay in Afghanistan and/or to encourage refugees to return.
Medium-Term Risks
Decline in donor inflows to the budget and to finance development projects.	Medium	High - Lack of progress in implementing reforms agreed under the Self-Reliance through Mutual Accountability Framework or donor fatigue result in decline in donor inflows, especially to the budget. - The decline in inflows leads to lower public spending, lower growth, increased unemployment, and/or exchange rate pressures.	Strengthen policy implementation to maintain macro stability, speed up structural reform, and improve economic governance, including stronger legislative, institutional, and regulatory frameworks, and law enforcement.
Structurally weak growth in emerging market economies, particularly in China and India which are key stakeholders in development of Afghanistan’s natural resources, results in a delay in investment plans in extractive industries.	Medium	Medium - Delays in investments to develop natural resources postpone the projected pick-up in growth and result in lower exports. - Lower than expected revenues from natural resources could lead to increasing budget deficits as spending envelope continues to increase. - Fiscal deficits and lower export receipts may lead to exchange rate depreciation and higher inflation. - Lack of progress in developing natural resources could result in higher narcotics production.	Strengthen policy implementation to maintain macro stability and improve business climate, including a sound fiscal regime for natural resources.
Heightened risk of security dislocation in the Middle East having negative spillovers in Afghanistan, aggravating security concerns.	Medium	Medium - Deteriorating security reduces confidence and results in lower growth and excessive volatility of the exchange rate. - Lower growth results in a decline in domestic revenue and a higher fiscal deficit. - Excessive volatility of the exchange rate leads to further dollarization, capital flight and inflation.	Strengthen fiscal and monetary policies to maintain macroeconomic stability.
Medium-Term Risks
Lack of progress in banking sector and strengthening anti-money laundering and combating the financing of terrorism (AML/CFT) reforms, compromising financial sector’s soundness.	Medium	Medium - Banking sector constrained in fulfilling its intermediation role results in less credit to the economy, inefficient allocation, lower access to finance, and slower growth. - Confidence in banking sector could dissipate, leading to banking sector liquidity challenges. - Lax or ineffective enforcement could undermine financial discipline, bank governance, risk management, financial controls and money laundering controls and result in bank failure(s) and need for bailouts. - Access by Afghan banks to global financial system is impeded.	Ensure that prudential and AML/CFT preventive (including fit and proper) standards are strictly observed and supervision enforcement actions are implemented promptly. Implement the action plan as agreed upon with the Financial Action Task Force to exit the monitoring process.

^¹Staff assessment of the likelihood of realization in the next three years.

Islamic Republic of Afghanistan: Risk Assessment Matrix

Nature/Source of Risk	Likelihood¹	Expected Economic Impact if Realized	Possible Mitigating Measures
Near-Term Risks
Deteriorating security situation. Stalemate in peace talks with the Taliban.	Medium	High -Increasing security concerns sap investor and consumer confidence with lower growth and excessive volatility of the exchange rate. -Lower growth results in a decline in domestic revenue and a higher fiscal deficit. - High volatility of the exchange rate leads to further dollarization, capital flight and inflationary pressure.	Strengthen fiscal and monetary policies to maintain macroeconomic stability.
A long lasting political agreement is reached with insurgents.	Low	High - A peace settlement will lead to higher confidence, investment, and growth.	Adjust the policy mix to take into account likely higher budget revenue, foreign exchange inflows by allowing for higher spending and possible exchange rate appreciation.
Weak fiscal policy implementation, particularly setbacks in revenue mobilization efforts and difficulties in expenditure and cash management.	High	High - Lower than expected yield from revenue mobilization efforts leads to spending cuts. - Pressing spending needs result in depletion of the treasury cash balances and unfunded allotments lead to arrears.	Increase tax compliance, take measures to mobilize additional revenue, prioritize spending, and improve coordination between the treasury and budget departments.
Acceleration in outflows of migrants.	Medium	Medium - High demand for foreign exchange and downward pressure on the Afghani, with a risk of eroding confidence in the authorities’ ability to maintain macroeconomic stability and lift growth. - Pressure for budget expenditure to incentivize potential emigrants to stay in Afghanistan and/or to encourage refugees to return.	Continue to manage the exchange rate flexibly, seek to improve security, and mobilize donor financing to incentivize potential emigrants to stay in Afghanistan and/or to encourage refugees to return.
Medium-Term Risks
Decline in donor inflows to the budget and to finance development projects.	Medium	High - Lack of progress in implementing reforms agreed under the Self-Reliance through Mutual Accountability Framework or donor fatigue result in decline in donor inflows, especially to the budget. - The decline in inflows leads to lower public spending, lower growth, increased unemployment, and/or exchange rate pressures.	Strengthen policy implementation to maintain macro stability, speed up structural reform, and improve economic governance, including stronger legislative, institutional, and regulatory frameworks, and law enforcement.
Structurally weak growth in emerging market economies, particularly in China and India which are key stakeholders in development of Afghanistan’s natural resources, results in a delay in investment plans in extractive industries.	Medium	Medium - Delays in investments to develop natural resources postpone the projected pick-up in growth and result in lower exports. - Lower than expected revenues from natural resources could lead to increasing budget deficits as spending envelope continues to increase. - Fiscal deficits and lower export receipts may lead to exchange rate depreciation and higher inflation. - Lack of progress in developing natural resources could result in higher narcotics production.	Strengthen policy implementation to maintain macro stability and improve business climate, including a sound fiscal regime for natural resources.
Heightened risk of security dislocation in the Middle East having negative spillovers in Afghanistan, aggravating security concerns.	Medium	Medium - Deteriorating security reduces confidence and results in lower growth and excessive volatility of the exchange rate. - Lower growth results in a decline in domestic revenue and a higher fiscal deficit. - Excessive volatility of the exchange rate leads to further dollarization, capital flight and inflation.	Strengthen fiscal and monetary policies to maintain macroeconomic stability.
Medium-Term Risks
Lack of progress in banking sector and strengthening anti-money laundering and combating the financing of terrorism (AML/CFT) reforms, compromising financial sector’s soundness.	Medium	Medium - Banking sector constrained in fulfilling its intermediation role results in less credit to the economy, inefficient allocation, lower access to finance, and slower growth. - Confidence in banking sector could dissipate, leading to banking sector liquidity challenges. - Lax or ineffective enforcement could undermine financial discipline, bank governance, risk management, financial controls and money laundering controls and result in bank failure(s) and need for bailouts. - Access by Afghan banks to global financial system is impeded.	Ensure that prudential and AML/CFT preventive (including fit and proper) standards are strictly observed and supervision enforcement actions are implemented promptly. Implement the action plan as agreed upon with the Financial Action Task Force to exit the monitoring process.

^¹Staff assessment of the likelihood of realization in the next three years.

14. Staff discussed with the authorities interconnections and spillovers for Afghanistan. The principal connection between the Afghan economy and the rest of the world are donor inflows. These inflows finance most imports and dwarf (licit) exports, financial sector, and foreign direct investment. Regional developments affecting security and trade have a more limited impact on the Afghan economy. However, outward spillovers from Afghanistan are possible if a political impasse led to internal conflict, and a displaced population, internally and in neighboring countries, with lower trade and costs for countries receiving Afghan refugees. Recent signs of acceleration in migrant outflows are therefore of concern for the potential impact both on the stability of the local economy and on the number of refugees in the region. Looking forward, the authorities would need to assess how this recent acceleration of outflows, if unabated, could affect the fiscal position.

15. Afghanistan’s economy faces risks; many, but not all, are on the downside. The principal near- and medium-term risks stem from security, inadequate policy implementation and lack of progress in reform, slower growth in emerging market economies, especially China and India, or donor fatigue (see the accompanying debt sustainability analysis (DSA) paper). If realized they would reduce inflows and budget revenue, causing lower growth, employment, and investment, as well as possible exchange rate pressures. An upside risk is a political agreement with insurgents that results in higher confidence, investment, and economic activity. Also, the lifting of economic sanctions on Iran could benefit the Afghan economy through a boost to exports and an increase in remittances.

Policy Discussions: Strengthening Confidence Now for Economic Transformation

16. The overarching theme of the Article IV consultation is for Afghanistan to build confidence in its economy now. Afghanistan faces landmark transition challenges. The number one priority and challenge for the government is to convince their people that their economic strategy is viable, that it will yield the envisaged results, and that it requires collaboration and perseverance from all Afghans. Confidence is required to foster domestic demand and foreign investment, to help DAB deliver price stability, and, more generally, to manage Afghanistan’s transformation into a self-reliant, inclusive, and growing modern economy. The authorities’ ability to navigate this new landscape will determine the development path in the transformation decade (2015–24). It is paramount that reform policies are implemented to maintain the hard-won achievements to date: strong efforts will yield high returns and inaction carries major risks.

17. The authorities are well aware of these challenges and remain committed to their reform agenda. They noted that the new government’s structure and clarification of roles and responsibilities had resulted in a settling-in period to assure broad-based support for reforms within government and the population. At the recent SOM, the President and Chief Executive Officer reiterated their commitment to proceed, including in the period before the 2016 Brussels donor meeting, with the political, economic, governance, and social reforms to take Afghanistan towards peace, stability, and self-reliance. Reform implementation will be monitored by the President, Chief Executive Officer, Cabinet of Ministers, and civil society. Further, the government plans to prepare a medium-term reform plan by December 2015 based on its 12 national priority programs. The authorities and staff agreed that reforms need to be tailored to institutions’ capacity and the macro framework based on realistic assumptions, while continued IMF engagement and support from donors will remain critical.⁵

A. Inclusive Growth and Productivity

18. Afghanistan has made progress toward Millennium Development Goals, but more is needed. Access to primary healthcare has increased from 9 percent to 57 percent of population and over nine million students have been enrolled. Maternal health, child mortality and universal primary education indicators are at or close to 2015 targets. Pro-poor spending doubled between 2011 and 2014, reaching above 3 percent of GDP. However, poverty reduction remains a priority.⁶ Experience shows that growth has been more successful in reducing poverty when policies have been in place to deal with the risks, vulnerabilities and market failures that hold back participation, which are constraints in Afghanistan. In this regard, the authorities plan to review how fiscal policy contributes to inclusive growth and poverty reduction, and tailor policies to boosting growth well above the population growth rate while protecting the poor by shifting the composition of expenditures towards civilian spending and making taxes more equitable and growth friendly.

19. There was a shared vision of private sector-led, inclusive, and gender balanced growth based on a business-friendly environment. The political transition limited progress in 2014, but the authorities are determined to push ahead with reforms. They noted that policies to develop the private sector should focus on providing incentives that generate pro-poor outcomes and create jobs, which, unlike subsidies, can offer a sustainable source of income. They shared staff views that pro-poor policies should be directed to eliminate regulatory and administrative barriers for businesses, improve infrastructure, provide key business services, while strengthening governance, as signaled in the papers they prepared for the December 2014 conference and the September 2015 SOM. They flagged the initial steps taken included a younger, more professional Cabinet of Ministers, Public Financial Management Reform, and plan to reform the public administration. In addition, a policy on sub-national governance will be presented to Cabinet before the end of 2015 and the Cabinet will review concept notes on National Women’s Economic Empowerment Plan, Citizens’ Charter, Urban Development Program, and Rural Development by mid-2016. The authorities plan to reform licensing and registration, unify the system for trade and investment licenses, and establish a one-stop-shop for private businesses, and clarify the roles of the Afghanistan Investment Support Agency and Ministry of Commerce and Industry. They plan to amend the Land Management and Land Acquisition Laws to introduce orderly land markets and prepare a national infrastructure development plan to build domestic and regional connectivity. They have established a national procurement board to manage all high value contracts and conducted a review of customs and revenue staffing. Staff will continue to discuss TA needs to support implementation of the authorities’ ambitious reform agenda.

20. Over the medium term, potential growth will depend on the authorities’ ability to develop strategic sectors. The authorities wish to increase productivity, build institutions to regulate and enable markets, use private public partnerships and development policy to ensure government activities promote inclusive economic development. They consider agriculture, extractive industries, and transport as the main pillars of their inclusive and sustainable growth strategy, which, over time, should be private sector led. Staff concurs. Raising agricultural productivity by reforming land management, developing sectoral strategies for irrigation, and removing barriers that prevent farmers from selling their products are the main priorities as agriculture is the largest source of job creation.⁷ Further, the authorities believe that investing in infrastructure to strengthen Afghanistan’s position at the centre of South and Central Asia will allow it to benefit from increased trade, investment, and connectivity. The mining sector has the potential to attract foreign investment, raise revenues, and lift the local economy. In this context, staff welcomed the authorities’ indication that they, after clarification of the legal and strategic framework, wish to proceed with the appropriate exploitation of Afghanistan’s mineral resources, to ensure that these resources benefit all Afghans.

21. Staff agreed that sustained, inclusive, and gender-balanced growth will require improved competitiveness and productivity. Afghanistan’s exports need to be raised significantly and diversified; the discipline imposed by having to export will provide the necessary stimulus for innovation and good management practices. At the same time, unrelenting progress in structural reforms to strengthen governance and foster private sector development and investment remains crucial. This should contribute to investment and job creation to allow Afghanistan to absorb new labor market entrants over the medium term and support stronger domestic demand. To complement these efforts, the authorities also plan to support Afghans, who wish to explore employment opportunities abroad.

B. External Stability and Exchange Rate

22. The current account is dominated by imports and official transfers; licit exports are low. Excluding grants, the current account deficit was 37 percent of GDP in 2014. Official transfers more than financed this deficit.⁸ Exports of goods (excluding opium and internal sales to nonresidents), after stagnating, have increased noticeably in the past two years.⁹ Afghanistan’s imports have been driven mostly by the presence of foreign troops and donor activity. The foreign troop drawdown led to a decline in imports. The authorities wish to increase and diversify exports. They see potential for development of exports of agricultural products and developing light industry to compete with some imports and recognize that measures to facilitate private sector development are needed for export growth and diversification. Further, they see scope for higher remittances from Afghans working abroad and expect to receive revenue from the Central Asia South Asia Electricity Transmission and Trade Project (CASA-1000) and Turkmenistan-Afghanistan-Pakistan-India Natural Gas Pipeline (TAPI) later this decade. Staff noted that revenue from these sources would strengthen the external current account (before grants), but the timing and amount of these receipts were subject to some uncertainty depending on demand for Afghans to work abroad and speed of CASA-100 and TAPI implementation.

23. The exchange rate’s level appears in line with medium-term fundamentals, but data limitations make a robust assessment difficult. The de facto exchange regime is classified as floating. Compared to main developing country trading partners, Afghanistan’s currency has seen the least depreciation until recently which resulted in an appreciation of the real effective exchange rate (REER). However, the Afghani has depreciated by 11.7 percent against the US dollar between March 21 and October 21, inflation has been negative, bringing real effective exchange rate towards its equilibrium levels. A further quantitative assessment of the exchange rate’s level is hindered by inadequate balance of payments data, the multi-year civil conflict, very large aid flows, high dollarization, and a large informal sector including narcotics production. Structural impediments weigh heavily on Afghanistan’s competitiveness (see below). The authorities noted that the high level of dollarization and inadequate balance of payments data made the exchange rate assessment difficult.

24. Afghanistan’s reserves are comfortable. Gross reserves exceed seven months of imports, exceed total debt by a large margin, and are close to the level of broad money. External stability will continue to hinge on continued donor inflows. A decline in the donor footprint will need to be met with competitiveness gains, both through exchange rate adjustment and strengthening the business environment. DAB views the current reserve level as adequate and monitors closely aid, investment and remittance inflows to ensure reserves remain adequate and to be proactive in managing any shocks.

C. Fiscal Outlook and Debt Sustainability

25. Afghanistan needs to mobilize domestic revenue to ensure fiscal sustainability and reduce donor dependence. Low compliance has taken a toll on domestic revenue in recent years. Domestic revenues peaked at 11 percent of GDP in 2011 and subsequently declined to 8.5 percent of GDP in 2014 (covering only about one third of spending), remain significantly lower than regional and low-income countries (LICs) averages. Donors’ grants finance the bulk of security expenditure and part of spending related to service delivery, infrastructure development, and operations and maintenance. Staff highlighted that spending to support strong and inclusive growth will need success in revenue mobilization and that the country’s development and growth-and-welfare-enhancing reforms necessitate a sustainable fiscal framework. Staff noted that the authorities’ ability to implement countercyclical fiscal policy remains contingent on strengthening debt service capacity and, while this capacity remains limited in the medium to long term, the overall budget balance needs to remain close to zero.

26. Mobilizing domestic revenue requires introducing new taxes, strengthening revenue administration, and improving the tax policy mix. Staff stressed that continued medium-term revenue mobilization efforts will be needed by introducing VAT, additional excises and property taxes, developing natural resources, reducing exemptions, and improving enforcement and compliance. Staff projects the revenue measures introduced in 2015 to mobilize revenue of around 1 percent of GDP per year in the medium term. With continued improvement in revenue administration, VAT introduction, and development of the mining sector towards the end of the decade, staff projects revenues to reach 13 percent of GDP by 2020. Enhanced anti-corruption efforts in revenue collection will be critical to minimize leakages, improve compliance, and boost public confidence.

27. The mining sector presents a promising source of fiscal revenue. Mining projects have been delayed as contracts wait to be signed or renegotiated in light of declining international prices. The development of the sector has also been hampered by ongoing instability, and inadequate infrastructure, impeding exports. Despite the delays, the authorities are working to develop a transparent fiscal regime for extractive industries in full compliance with the EITI, including with the support of FAD TA. Staff supported the authorities’ objective to ensure a sound fiscal regime is in place while the sector develops, and underscored the need to develop the mining sector in an environmentally friendly manner and in consultation with civil society.

28. Prioritizing growing spending needs is also essential. Operating expenditures have doubled over the past decade to reach 20 percent of GDP in 2014. Operating costs are projected to stay elevated in the medium term because of continued security needs, payments for civil servants, teachers, health workers, and maintenance of public infrastructure. In addition, development outlays are expected to increase by 1 percent of GDP in this decade to meet Afghanistan’s human development and infrastructure needs. Thus, total expenditures are projected to increase from 26 percent of GDP in 2014 to close to 35 percent in 2020. Security spending is projected to decline gradually after 2020 with a reduction in the size of security forces, while non-security spending is projected to increase gradually, and development outlays are expected to be stable as a share of GDP. The authorities are seeking to increase the efficiency of spending through reducing ghost workers by use of electronic payments (with an initial focus on four ministries that are the largest employers), improving procurement, while at the same time increasing execution of donor-financed capital spending. They noted their limited discretion over spending because a large part of donor-financed outlays were directed to specific purposes, which constrained their ability to make spending poverty reducing, growth and employment generating. Staff discussed with the authorities ways to prioritize spending and make it more efficient, especially in the civil service sector, and stressed the need to reverse the declining trend in the coverage of operating expenses by domestic revenue.

29. Debt remains modest but Afghanistan’s reliance on grants to meet its expenditure needs poses sustainability risks. The Afghan government does not have domestic debt and its external public and publicly guaranteed debt amounted to $1.3 billion, or 6.4 percent of GDP, at end-2014, most of which is owed to multilateral creditors. Under the baseline scenario, with strong reform effort and donor support, improved security and reduced uncertainty, debt is sustainable. However, there are significant vulnerabilities; should reforms stall, security deteriorate, or grant financing fall short of the projected levels, Afghanistan will need to implement significant compensatory measures or the debt burden would quickly become unsustainable. Under a scenario of low grant financing, the present value of public debt reaches over 130 percent of GDP by the end of the projection period. Afghanistan’s external debt is low, but given its heavy reliance on grant financing, according to the IMF-World Bank framework, public external debt is judged to remain at high risk of distress (See DSA).¹⁰

30. The authorities agreed with the need to mobilize revenue and prioritize spending to move towards fiscal sustainability and self-reliance. They reaffirmed their commitment to continue to mobilize revenue with revenue measures and customs and revenue administration reforms, and noted that they wished to use growth-friendly tax measures and were concerned that higher tax rates could result in a surge in evasion and, hence, lower revenues. They noted building a revenue base requires growth and revenue generating strategic sectors, such as energy and transportation. They are preparing a borrowing policy to finance high return projects, to maintain a low level of debt, and plan to seek staff views on the policy, as it is prepared. They believe public sector investment in strategic sectors can yield high economic and social returns and wish to consider use of loans, private public partnerships, and build operate transfer arrangements. Staff cautioned about contracting loans and contingent liabilities given Afghanistan’s very limited debt service capacity, the risk of crowding out grants and, poverty-reducing and development outlays. Further, staff indicated that an independent appraisal of projects, their transparent inclusion in the budget and associated liabilities, and an assessment of their impact on debt sustainability are crucial.

D. Monetary and Exchange Rate Policy

31. Reserve money continues to be the nominal anchor for monetary policy. Political and security uncertainty have taken a toll on the conduct of monetary policy too. Lack of confidence in the Afghani and the high degree of dollarization of the economy make it harder for DAB to project money demand and to conduct its open market operations. DAB considered that the current monetary and exchange rate regime, which aims at delivering low inflation, while ensuring orderly conditions in the foreign exchange market, has served well, despite recent pressures. DAB is also considering how to increase use of the Afghani. Staff encouraged DAB to strengthen its communication strategy to clarify the monetary policy framework (objective and instruments) with a view to fostering public understanding of and confidence in DAB’s actions. DAB indicated it plans to continue regular communications including press releases after Supreme Council meetings and its quarterly bulletin.

32. Monetary operations are also hindered by limited instruments. At present, capital notes are the only domestic currency-denominated instruments issued by the DAB to steer monetary conditions, but their absorption is limited by banks’ liquidity. The need for DAB both to provide U.S. dollar liquidity to the economy to finance current account transactions and to sell U.S. dollars at its regular auctions to mop up liquidity, in the absence of a deep market for capital notes, risks blurring monetary policy signals. Moving forward, and as confidence in the Afghani improves, the DAB should gradually increase its use of domestic currency-denominated instruments for open market operations. Staff discussed the scope for developing such instruments, including sukuk, and further TA. The authorities signaled their desire to broaden the range of monetary instruments (see below) and asked the IMF to provide TA in this area.

E. Financial Sector

33. Financial intermediation needs to become more efficient and broad-based. The authorities wish to build a strong financial sector to increase access to finance, assure safety for depositors, enhance trade finance, and improve intermediation. They are cognizant of the need to improve banking sector profitability.¹¹ As banking system weaknesses are addressed, the authorities expect that credit availability should increase from its low base, though they recognize that the low private credit reflects the scarcity of profitable and appropriately collateralized lending opportunities and structural challenges. Staff recommended that policies to promote credit should address structural issues rather than interventions aimed at forcing banks to lend. The authorities wish to promote lending to small and medium enterprises (SMEs) and agriculture while developing microfinance to support growth and job creation. They wish to increase the types of financial instruments available, including Islamic ones for which they see considerable scope, to promote development of capital markets and the trading of financial products, for use as risk management tools, and to attract investment. To this end, the authorities are finalizing some Islamic banking regulations. Further, DAB is preparing a registry of immovable property collateral and the Supreme Court has recently approved simplified procedures to auction collateral. DAB is also promoting use of mobile banking to increase financial inclusion and noted that consumer protection is available and consumers have recourse to DAB, the Financial Disputes Resolution Commission, and the courts. Staff welcomed these initiatives, and encouraged greater financial inclusion over the medium term by continuing to promote mobile banking and microfinance lending, bank penetration in rural areas, and financial literacy.

34. The banking sector is undergoing an important restructuring process that is intended to signal a break with the past. Much has been done to strengthen the supervision, regulatory and legislative frameworks, including enhancing on- and off-site supervision, improving information exchange, assertive enforcement, and passage of the banking law that will strengthen bank governance. Also, the restructuring of weak banks continues, in accordance with agreed action plans. Further, the newly-established Bad Debt Commission is facilitating recovery of non-performing loans: participation is mandatory for public banks and voluntary for private banks. Staff praised DAB for this important progress and underscored the need to continue with the reform agenda, that bank restructuring should occur within a sound governance framework, and that ad hoc institutions should have clear sunset clauses to avoid undermining institutions formally mandated for such purposes. Staff and authorities agreed on the need to push ahead with the planned strengthening of vulnerable and weak banks and privatization of New Kabul Bank, implementing vigorously the new banking, AML, and CFT laws, their regulations, and guidelines, and continuing to enhance DAB’s supervision. DAB noted the need to strengthen the performance of some of the state banks.

F. Business Environment

35. The business environment remains very difficult. Afghanistan is at the bottom decile of World Bank Doing Business 2015 index and its ranking declined to 183 (out of 189 economies), primarily owing to the increasing time and cost of starting a business, dealing with construction permits, getting credit, and paying taxes. Afghanistan faces significant challenges to improve business environment ranging from licensing procedures, protection of minority investors to contract enforcement and property registration notwithstanding the very difficult security environment.¹² Afghanistan was also in the bottom 20 percent in the World Bank’s 2013 Country Performance Ratings, which assesses the policy and institutional framework that more strongly fosters growth and poverty reduction among 76 IDA-eligible countries. Corruption remains high, with a rank of 172 out of 175 countries in Transparency International’s Corruption Perceptions Index in 2014.

36. To support a business-friendly environment, the authorities will strengthen anti-corruption and AML/CFT frameworks. As noted, the authorities are determined to improve the business environment. They have implemented measures to strengthen the anti-corruption and AML/CFT frameworks. The October 2014 presidential decree on Kabul Bank signaled the intentions of the new administration, which has zero tolerance for corruption and tax evasion. The authorities have made progress since May 2015 to strengthen the AML/CFT legal framework notably through the issuance of two DAB regulations on preventive measures in the financial sector and fit and proper requirements. They also are implementing an AML/CFT Action Plan. Staff welcomed the progress and noted that continued efforts and enhanced implementation are needed for Afghanistan to exit the FATF’s monitoring process, to help detect and disrupt the receipt and use of, and to confiscate the proceeds of crimes, including corruption and drug trafficking. The authorities have initiated asset declarations by senior officials and plan to broaden their scope. Staff welcomed the authorities’ efforts to improve asset declarations and emphasized the importance of reducing incentives and opportunities for corruption as well as improving enforcement, while noting that more is needed to facilitate audit and publication of asset declarations. Staff underscored the role of well-trained staff, capacity building and efficient use of the information technology, particularly in customs, to fight against corruption.

G. Protecting the Poor

37. Pro-poor spending peaked in 2014 as a result of higher payments to families of martyrs and disabled. Pro-poor spending stood at 3.1 percent of GDP in 2014 compared to 2.3 percent in 2013. Owing to challenges in securing donor support to finance operations and maintenance spending on health and education, and better targeting of pensions to families of martyrs and disabled, the budgeted pro-poor spending is projected to amount to 2.7 percent of GDP in 2015, a floor in the SMP. The authorities are committed to continue supporting families of martyrs and disabled and improving the targeting of these payments. They reiterated that the definition of pro-poor spending in the budget was rather narrow, since it comprised only the ministries of education, health, and social affairs (about 40 percent of non-security/non-development outlays), and indicated that most government spending favored the poor.

38. The authorities have a plan to foster inclusion and reduce poverty in the context of the SMAF. This plan includes specific short-term actions to provide impetus to their inclusive growth strategy. To provide security and end land-grabbing affecting the urban poor, the government will launch a national program to survey informal settlements and provide 100 percent coverage of land tenure certificates in main cities by the end of December 2015. Further, a program will be launched by December 2015 to provide at least 5,000 rural communities with funds for labor-intensive works to repair agricultural infrastructure. By year-end, the government will launch a pilot program for market gardening in urban peripheries to promote food self-sufficiency, and complete new power distribution systems to provide electricity to 40,000 poor households. In the first half of 2016, the government will form a commission to review use of child labor in the carpet industry and provide reform and compliance recommendations to meet Afghanistan’s commitments to end the use of child labor.

J. Other Issues

39. Data provision has shortcomings but is broadly adequate for surveillance. The quality and timeliness of monetary, fiscal, and price data are broadly adequate, although coverage could be improved. Fiscal accounts cover only the central government. Limited data on the public enterprises are available, but qualitative information suggests that some of the largest enterprises are operating at a loss and represent a potential fiscal risk (Annex I). Data on national accounts, balance of payments, and social indicators also suffer from weaknesses in coverage and consistency. Recording and monitoring of debt statistics could be strengthened. The authorities have been working to improve compilation of debt statistics on a regular basis. They reached out to their creditors to enhance recording of disbursements and debt repayments and are working to improve data entry mechanism in Commonwealth Secretariat Debt Recording and Management Software (CS-DRMS). In addition, they plan to reconcile treasury debt data with DAB, AFMIS, and Client Connections. Fund technical assistance, including from the IMF’s Middle East Regional Technical Assistance Center, is also being provided to strengthen statistical data systems.

Performance Under the Staff-Monitored Program

40. Performance under the SMP has been satisfactory. Worse-than-expected security conditions and delays in forming a government have complicated policy implementation.

All June 2015 quantitative targets and September indicative targets have been met except, for social and other priority spending for June and September and the budget revenue target for September. Revenues fell short of the target by Af 0.5 billion during the first nine months of 2015, as over-performance in the first half was reversed by under-performance in the third quarter due to delays in implementation of revenue measures. Pro-poor spending so far was below target due to delays in budget execution, but the year-end target is unchanged with higher execution expected in the fourth quarter. The treasury’s cash balance was depleted in August but grants received in September raised the cash balance above the indicative target. Monetary targets were also met, including that on the adjusted NIR, reflecting a deliberate reduction in foreign exchange auctioned by the DAB in late May and June.
Progress on end-June structural benchmarks was slower than planned. Revenue measures, including the increase in the business receipts tax, introduction of a telecommunications fee, and increases in the fuel fees collected at customs, originally planned to be introduced in June, were implemented by decree on August 17.¹³ The telecommunications fee entered into effect on September 23, but this measure was rejected by the lower house of parliament on October 14, but remains in effect, unless rejected by the upper house of parliament, since it was mentioned in 2015 budget law approved by parliament. If the fee is rejected by the upper house, the authorities will take compensatory measures. Further, they plan legislation to maintain the fee in and after 2016. The banking law was enacted by decree on August 19. The structural benchmark on hiring an independent party to audit bad debt recoveries at a state bank was met in September. The regulation on currency reporting has been issued and need strengthening in a few areas, which will be done by end-December 2015.
Follow-through on earlier financial sector reforms has proceeded, but progress has been slower than planned in a few areas. DAB did communicate its enforcement actions to the vulnerable systemic bank, which has increased its capital above minimum levels and is working to reduce its large exposures and foreign exchange open position. For the other vulnerable bank, a five-year operating strategy has been prepared and is being reviewed by DAB. Chief Operating and Credit Officers have been hired, but a Chief Executive Officer has not, because it has not been possible to identify a qualified candidate. The end-June capital target for this bank was met.
Progress on structural reforms to be completed later in the year continues at various speeds. Structural benchmarks to strengthen the revenue administration have been implemented and new banking regulations are being prepared.

41. The strengthening of weak banks has proceeded as envisaged in the agreed action plans.¹⁴ The cabinet decided in August to proceed with the sale of NKB, and the sale of NKB was initiated on October 28, 2015. Further, the newly-established Bad Debt Commission is facilitating recovery of nonperforming loans. Nonetheless, weaknesses remain in the banking system and the authorities are committed to continue with strengthening of vulnerable and weak banks, implementing vigorously the new banking law and its regulations. They revised the banking regulations on asset classification and provisioning in September, the section on credit risk exposure needs strengthening; and a regulation on corporate governance and related-party lending is being prepared. DAB is determined to enhance its supervision capacity and make a transition to a risk-based bank supervision regime.

42. The SMP’s macroeconomic framework has been revised compared to the original program projecting lower growth and inflation in 2015. Real GDP growth is now projected at 2 percent, down from 3.5 percent in the original program, and inflation for 2015 has been revised down from 5 percent to 1.0 percent on a year-on-year basis. Lower nominal GDP growth is projected to lower demand for real balances with lower reserve and broad money growth. Further, a revised budget revenue projection takes into account lower nominal GDP growth, the delay in implementing revenue measures, and the measures to offset the impact of this delay. Grant-financed development budget expenditures were also revised down reflecting the mid-year budget review. Grants to the operating budget, however, are higher than earlier projected, reflecting new donor pledges made recently some of which were linked to the SMP.

43. A significant increase in revenue performance remains a cornerstone of the program, supported by expenditure control. Domestic revenue is projected to increase by more than 1 percentage points of GDP (to 9.6 percent of GDP) in 2015. The delay in implementation of revenue measures is projected to result in about Af 3.3 billion (0.3 percent of GDP) less revenue in 2015 and lower nominal GDP growth is expected to reduce revenue by Af 3 billon. To offset this loss, the authorities started to implement expenditure contingency measures by reducing allotments by 2 percent to yield Af 1.7 billion and plan to take revenue measures of Af 1.6 billion, including collection of tax arrears and vehicle registration fees. The latter revenue measures are projected to offset any further legal and capacity constraints encountered in the introduction of new revenue measures. On the expenditure side, the authorities continued to contain nonpriority spending and implement strict control of other nonsecurity related spending. They limited increases in wages and pensions, bonuses, and conducted a review of the targeting of payments to martyrs and disabled.

44. Reserve money continues as the nominal anchor for monetary policy. The pick-up in money demand has been slower than anticipated so far this year reflecting real growth and inflation well below programmed levels. As a result, the end-December year-on-year target for reserve money growth has been revised down to 7 percent. The acceleration of emigration has put pressures on the foreign exchange market. This development and the revision to the reserve money growth target also called for a revision of the December year-on-year net international reserves accumulation target down to zero. DAB reiterated its commitment to a flexible exchange rate policy, while maintaining orderly market conditions.

45. The SMP also aims at helping create a business friendly environment. The authorities plan to reform licensing and registration, unify the system for trade and investment licenses, and establish a one-stop-shop for private businesses. They will clarify the roles of the Afghanistan Investment Support Agency and the, Ministry of Commerce and Industry to improve service to the private sector. They will also amend the Land Management and Land Acquisition Laws to introduce orderly land markets and prepare a national infrastructure development plan to build domestic and regional connectivity.

Staff Appraisal

46. Despite its enormous progress over the past decade, Afghanistan remains one of the poorest countries in the world. Security and political uncertainties, the drawdown of international troops, and weak institutions have held back growth and weighed on social outcomes. The national unity government, which started work in late 2014, is committed to economic transformation to assure durable and inclusive growth over the medium term.

47. Afghanistan is at a critical juncture; early and decisive action is needed to ensure strong economic performance. The envisaged recovery in the real economy is slow with projected growth in 2015 only slightly above 2014. The authorities have expressed strong commitment to reform, have tackled key vulnerabilities, and made a determined start to implement structural reforms, though the pace was slower than planned because of a settling-in period, resistance from interest groups, and unexpected shocks. Better economic performance will require strong and sustained reforms and improved security conditions, without which risks to the economy and the country are important and potentially far-reaching.

48. The economic outlook for 2016 and beyond continues to depend on political and security stability, steadfast economic reform, and donor support. Peace dividends for a country like Afghanistan would be truly significant. The authorities’ economic strategy would benefit from strengthened implementation, particularly with regard to removing obstacles to boosting private sector activity, a better understanding of linkages between the opiate sector and the rest of the economy, and assuring continued donor flows. The latter will be needed to help maintain macroeconomic stability, support economic reforms, and finance security and development needs to allow Afghanistan to make the transition to self-reliance. Reforms need to be tailored to institutions’ capacity and the macro framework based on realistic assumptions. Over the medium term, inclusive growth will depend on the ability to develop strategic sectors, enhance the business climate, and consolidate Afghanistan’s position at the centre of the region.

49. The macroeconomic policy mix remains appropriate and the need to strengthen confidence in economic management and policies is paramount. Dissemination of the medium-term reform plans that will be completed later this year will explain policy intentions and should help build confidence. The fiscal balance including grants should continue to remain broadly balanced to ensure sustainability, and efforts should be stepped up to mobilize domestic revenue and further improve budget management. These actions are required to ensure pro-poor and development expenditure are increased to help achieve the millennium development goals (MDGs) and sustainable development goals (SDGs). Monetary policy will need to adjust to changing conditions and continue to foster confidence in the domestic currency. To this end and to facilitate monetary policy implementation, further development of domestic-currency denominated instruments will be helpful. DAB should continue to pursue its commitment to a flexible exchange rate regime and maintain orderly market conditions.

50. Mobilizing domestic revenues and prioritizing expenditure need strengthening. Revenue mobilization requires introducing new taxes, strengthening revenue administration, and improving the tax policy mix. Over the medium term the authorities should introduce VAT, additional excises and property taxes, develop natural resources, reduce exemptions, and improve enforcement and compliance. Higher revenue is essential to finance needed development and security outlays and reduce reliance on donor funding. At the same time, prioritizing growing spending needs and making sure that scarce resources are spent efficiently are crucial tasks for the authorities.

51. The banking system needs to play its role in fostering economic development. The central bank’s strengthened monitoring of the banking system and insisting on prudential standards and implementing enforcement actions, especially for banks that are loss-making or have weak financial positions, and passage of the banking law have been welcome developments since the previous consultation. However, the banking system remains vulnerable to adverse shocks, bank credit is low, and determined efforts continue to be needed to assure effective banking supervision (including AML/CFT supervision). The planned strengthening of vulnerable and weak banks and privatization of (or other viable options regarding) NKB need to proceed expeditiously. Strong efforts are needed to implement vigorously the new banking, AML, and CFT laws and their regulations, and to enhance further DAB’s supervision capacity. Full implementation of the action plan agreed with the FATF will ensure that the banking sector maintains its international correspondent relationships.

52. Reducing incentives and opportunities for corruption, sustained progress to improve the anti-corruption and AML/CFT framework, and improved enforcement are needed. The authorities’ plans to improve revenue administration, bank governance, the business environment, and progress in strengthening the AML/CFT regime are welcome and should be supported by effective implementation and enforcement, capacity building and efficient use of the information technology, particularly in customs, to fight against corruption. These actions will be critical to supporting private sector-led growth.

53. The outlook remains subject to significant risks, most are on the downside. Recent security developments are casting a shadow over the outlook. Heightened security risks weaken public confidence and undermine a sustainable pick-up in economic activity. Dependence on donor financing, large expenditure needs, and a limited domestic revenue capacity, and a still fragile banking system are important vulnerabilities. As the DSA shows, while under a benign baseline scenario the present value of public external debt would remain low in the longer term, this outcome depends on the financing gap being covered by grants. Adverse domestic or regional security developments, political instability, inadequate implementation of economic policies, and donor fatigue remain the main potential threats to the economy.

54. Staff has continued its close engagement through policy advice and technical assistance, including in the context of the SMP. The SMP aims at addressing fiscal and banking vulnerabilities, preserving macroeconomic stability, while laying the ground for sustainable inclusive growth. Staff supports the proposed modification to the December targets for reserve money growth, net international reserves and budget revenue, which take into account lower nominal GDP growth, lower demand for real balances, the increase in emigration, and delays in policy implementation. The nine-month SMP was also designed to build a track record; successful performance would support a request for an extended credit facility (ECF) arrangement.

55. It is proposed that the next Article IV consultation with Afghanistan take place on the standard 12-month cycle.

Table 1.

Islamic Republic of Afghanistan: Selected Economic Indicators, 2012–15

(Quota: SDR 161.9 million)

(Population: approx. 30.6 million)

(Per capita GDP: approx. US$654; 2014)

(Poverty rate: 35.8 percent; 2011)

(Main exports: opium, US$2.0 billion; carpets, US$86.3 million; 2013)

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

^{^1/}Excluding the narcotics economy.

^{^2/}Revised with improved coverage.

^{^3/}For comparison, 2012 is recalculated from data reported on the solar fiscal year basis (March 21–March 20). Since 2013, the fiscal year runs December 22–December 21 (in most years), which is more aligned with the Gregorian calendar year.

^{^4/}Comprising mainly current spending.

^{^5/}Defined as domestic revenues minus operating expenditures.

^{^6/}Public sector only. Incorporates committed but not yet delivered debt relief. Debt relief recorded fully at time of commitment.

^{^7/}In months of next year’s import of goods and services.

^{^8/}CPI-based, vis-a-vis the U.S. dollar.

^{^9/}Items presented on the Afghan solar year basis.

Table 1.

Islamic Republic of Afghanistan: Selected Economic Indicators, 2012–15

(Quota: SDR 161.9 million)

(Population: approx. 30.6 million)

(Per capita GDP: approx. US$654; 2014)

(Poverty rate: 35.8 percent; 2011)

(Main exports: opium, US$2.0 billion; carpets, US$86.3 million; 2013)

			2012	2013	2014	2015
			Act.	Act.	Act	Proj.
Output and prices ^1/			(Annual percentage change, unless otherwise indicated)
	Real GDP		14.0	3.9	1.3	2.0
	Nominal GDP (in billions of Afghanis)		1,034	1,117	1,173	1,184
	Nominal GDP (in billions of U.S. dollars)		20.3	20.2	20.4	19.4
	Consumer prices (period average) ^2/		6.4	7.4	4.7	−1.3
		Food	4.7	7.6	7.7	−1.7
		Non-food	8.7	7.2	1.4	−0.9
	Consumer prices (end of period) ^2/		5.9	7.2	1.5	1.0
Investment and savings ^2/			(In percent of GDP)
	Gross domestic investment		25.8	22.9	21.5	21.9
		Of which: Private	7.2	6.6	5.9	5.7
	Gross national savings		31.8	30.4	27.8	26.4
		Of which: Private	13.1	14.7	13.9	10.2
Public finances (central government) ^3/
	Domestic revenues and grants		25.2	24.3	23.9	28.5
		Domestic revenues	10.1	9.8	8.5	9.7
		Grants	15.1	14.6	15.4	18.8
	Expenditures		25.0	25.0	25.6	28.5
		Operating ^4/	18.2	17.8	19.4	21.5
		Development	6.8	7.2	6.2	7.0
	Operating balance (excluding grants) ^5/		−8.1	−8.0	−10.9	−11.8
	Overall balance (including grants)		0.2	−0.6	−1.7	0.0
	Public debt ^6/		6.6	6.7	6.4	6.7
Monetary sector			(Annual percentage change, end of period, unless otherwise indicated)
	Reserve money		3.9	12.4	13.3	7.0
	Currency in circulation		1.1	12.5	16.7	7.0
	Broad money		8.8	9.4	8.3	5.7
	Interest rate, 28-day capital note (in percent)		2.0	3.4	3.5	…
External sector ^1/			(In percent of GDP, unless otherwise indicated)
	Exports of goods (in U.S. dollars)		609	714	775	811
	Exports of goods (annual percentage change)		20.5	17.2	8.5	4.7
	Imports of goods (in U.S. dollars)		10,079	9,242	8,881	8,746
	Imports of goods (annual percentage change)		−1.3	−8.3	−3.9	−1.5
	Merchandise trade balance		−46.7	−42.3	−39.6	−40.9
	Current account balance
		Excluding official transfers	−42.1	−35.5	−37.0	−40.9
		Including official transfers	6.0	7.4	6.3	4.5
	Foreign direct investment		0.9	0.5	0.6	0.3
	Total external debt ^6/		6.8	6.9	6.4	7.0
	Gross international reserves (in millions of U.S. dollars)		6,867	6,886	7,248	7,110
		Import coverage of reserves ^7/	7.3	7.6	8.2	7.7
	Exchange rate (average, Afghanis per U.S. dollar)		50.9	55.4	57.4	…
	Real exchange rate (average, percentage change) ^8/		−4.3	−2.7	−0.6	…
Memorandum items ^9/			2012/13	2013/14	2014/15	2015/16
	Nominal GDP, incl. opium (in billions of Afghanis)		1,086	1,197	…	…
	Real GDP, incl. opium (annual percentage change)		10.9	6.5	…	…
		Price (in U.S. dollars per kilogram)	163	163	…	…

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

^{^1/}Excluding the narcotics economy.

^{^2/}Revised with improved coverage.

^{^4/}Comprising mainly current spending.

^{^5/}Defined as domestic revenues minus operating expenditures.

^{^6/}Public sector only. Incorporates committed but not yet delivered debt relief. Debt relief recorded fully at time of commitment.

^{^7/}In months of next year’s import of goods and services.

^{^8/}CPI-based, vis-a-vis the U.S. dollar.

^{^9/}Items presented on the Afghan solar year basis.

Table 1.

Islamic Republic of Afghanistan: Selected Economic Indicators, 2012–15

(Quota: SDR 161.9 million)

(Population: approx. 30.6 million)

(Per capita GDP: approx. US$654; 2014)

(Poverty rate: 35.8 percent; 2011)

(Main exports: opium, US$2.0 billion; carpets, US$86.3 million; 2013)

			2012	2013	2014	2015
			Act.	Act.	Act	Proj.
Output and prices ^1/			(Annual percentage change, unless otherwise indicated)
	Real GDP		14.0	3.9	1.3	2.0
	Nominal GDP (in billions of Afghanis)		1,034	1,117	1,173	1,184
	Nominal GDP (in billions of U.S. dollars)		20.3	20.2	20.4	19.4
	Consumer prices (period average) ^2/		6.4	7.4	4.7	−1.3
		Food	4.7	7.6	7.7	−1.7
		Non-food	8.7	7.2	1.4	−0.9
	Consumer prices (end of period) ^2/		5.9	7.2	1.5	1.0
Investment and savings ^2/			(In percent of GDP)
	Gross domestic investment		25.8	22.9	21.5	21.9
		Of which: Private	7.2	6.6	5.9	5.7
	Gross national savings		31.8	30.4	27.8	26.4
		Of which: Private	13.1	14.7	13.9	10.2
Public finances (central government) ^3/
	Domestic revenues and grants		25.2	24.3	23.9	28.5
		Domestic revenues	10.1	9.8	8.5	9.7
		Grants	15.1	14.6	15.4	18.8
	Expenditures		25.0	25.0	25.6	28.5
		Operating ^4/	18.2	17.8	19.4	21.5
		Development	6.8	7.2	6.2	7.0
	Operating balance (excluding grants) ^5/		−8.1	−8.0	−10.9	−11.8
	Overall balance (including grants)		0.2	−0.6	−1.7	0.0
	Public debt ^6/		6.6	6.7	6.4	6.7
Monetary sector			(Annual percentage change, end of period, unless otherwise indicated)
	Reserve money		3.9	12.4	13.3	7.0
	Currency in circulation		1.1	12.5	16.7	7.0
	Broad money		8.8	9.4	8.3	5.7
	Interest rate, 28-day capital note (in percent)		2.0	3.4	3.5	…
External sector ^1/			(In percent of GDP, unless otherwise indicated)
	Exports of goods (in U.S. dollars)		609	714	775	811
	Exports of goods (annual percentage change)		20.5	17.2	8.5	4.7
	Imports of goods (in U.S. dollars)		10,079	9,242	8,881	8,746
	Imports of goods (annual percentage change)		−1.3	−8.3	−3.9	−1.5
	Merchandise trade balance		−46.7	−42.3	−39.6	−40.9
	Current account balance
		Excluding official transfers	−42.1	−35.5	−37.0	−40.9
		Including official transfers	6.0	7.4	6.3	4.5
	Foreign direct investment		0.9	0.5	0.6	0.3
	Total external debt ^6/		6.8	6.9	6.4	7.0
	Gross international reserves (in millions of U.S. dollars)		6,867	6,886	7,248	7,110
		Import coverage of reserves ^7/	7.3	7.6	8.2	7.7
	Exchange rate (average, Afghanis per U.S. dollar)		50.9	55.4	57.4	…
	Real exchange rate (average, percentage change) ^8/		−4.3	−2.7	−0.6	…
Memorandum items ^9/			2012/13	2013/14	2014/15	2015/16
	Nominal GDP, incl. opium (in billions of Afghanis)		1,086	1,197	…	…
	Real GDP, incl. opium (annual percentage change)		10.9	6.5	…	…
		Price (in U.S. dollars per kilogram)	163	163	…	…

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

^{^1/}Excluding the narcotics economy.

^{^2/}Revised with improved coverage.

^{^4/}Comprising mainly current spending.

^{^5/}Defined as domestic revenues minus operating expenditures.

^{^6/}Public sector only. Incorporates committed but not yet delivered debt relief. Debt relief recorded fully at time of commitment.

^{^7/}In months of next year’s import of goods and services.

^{^8/}CPI-based, vis-a-vis the U.S. dollar.

^{^9/}Items presented on the Afghan solar year basis.

Table 2.

Islamic Republic of Afghanistan: Medium-Term Macroeconomic Framework, 2012–20

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

^{^1/}Excluding the narcotics economy.

^{^2/}Revised with improved coverage.

^{^3/}For comparison, 2012 is recalculated from data reported on the solar fiscal year basis.

^{^4/}Comprising mainly current spending. It is assumed that donors’ recurrent expenditure off-budget is moved onto the budget by 2020. The actual rate of transfer on-budget is uncertain.

^{^5/}Defined as domestic revenues minus operating expenditures.

^{^6/}In months of next year’s import of goods and services.

^{^7/}Public sector only. Incorporates committed but not yet delivered debt relief. Debt relief recorded fully at time of commitment.

^{^8/}Incorporates the 2012 revision to the UN World Population Prospects.

Table 2.

Islamic Republic of Afghanistan: Medium-Term Macroeconomic Framework, 2012–20

			2012	2013	2014	2015	2016	2017	2018	2019	2020
			Act.	Act.	Act.	Proj.	Proj.	Proj.	Proj.	Proj.	Proj.
Output and prices ^1/			(Annual percentage change, unless otherwise indicated)
	Real GDP		14.0	3.9	1.3	2.0	3.0	4.0	5.0	6.0	6.0
	Nominal GDP (in billions of U.S. dollars)		20.3	20.2	20.4	19.4	19.6	20.9	22.2	23.8	25.4
	Consumer prices (period average) ^2/		6.4	7.4	4.7	−1.3	3.1	5.0	5.0	5.0	5.0
Investment and savings ^2/			(In percent of GDP, unless otherwise indicated)
	Gross domestic investment		25.8	22.9	21.5	21.9	21.7	22.3	23.0	25.5	24.2
		Of which: Private	7.2	6.6	5.9	5.7	6.5	7.8	9.4	13.0	13.3
	Gross national savings		31.8	30.4	27.8	26.4	23.7	21.6	20.7	20.6	19.5
		Of which: Private	13.1	14.7	13.9	10.2	8.6	7.0	7.1	8.2	8.7
Public finances (central government) ^3/
	Domestic revenues and grants		25.2	24.3	23.9	28.5	30.2	31.8	32.6	33.5	34.5
		Domestic revenues	10.1	9.8	8.5	9.7	10.6	11.3	11.9	12.5	13.0
		Grants	15.1	14.6	15.4	18.8	19.6	20.5	20.7	21.1	21.5
	Expenditures		25.0	25.0	25.6	28.5	30.3	31.6	32.6	33.6	34.6
		Operating ^4/	18.2	17.8	19.4	21.5	22.9	24.0	25.0	25.8	26.6
		Development	6.8	7.2	6.2	7.0	7.4	7.6	7.6	7.8	8.0
	Operating balance (excluding grants) ^5/		−8.1	−8.0	−10.9	−11.8	−12.2	−12.7	−13.1	−13.3	−13.6
	Overall budget balance (including grants)		0.2	−0.6	−1.7	0.0	−0.1	0.2	0.0	−0.1	0.0
External sector ^1/
	Merchandise trade balance		−46.7	−42.3	−39.6	−40.9	−41.9	−41.3	−39.8	−38.7	−34.2
	Current account balance, excluding official grants		−42.1	−35.5	−37.0	−40.9	−42.0	−41.4	−39.7	−38.6	−34.6
	Gross reserves (in millions of U.S. dollars)		6,867	6,886	7,248	7,110	7,500	7,650	7,700	7,700	7,800
		Import coverage of reserves ^6/	7.3	7.6	8.2	7.7	7.6	7.4	6.9	6.8	6.7
Memorandum items:
	Total public debt ^7/		6.8	6.9	6.4	7.0	6.8	6.7	9.4	9.4	9.3
		Of which: External debt	6.8	6.9	6.4	7.0	6.8	6.7	6.5	6.3	6.1
		Domestic debt	0.0	0.0	0.0	0.0	0.0	0.0	2.8	3.1	3.2
	GDP per capita (in U.S. dollars) ^8/		680	660	654	606	597	625	650	681	713

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

^{^1/}Excluding the narcotics economy.

^{^2/}Revised with improved coverage.

^{^3/}For comparison, 2012 is recalculated from data reported on the solar fiscal year basis.

^{^4/}Comprising mainly current spending. It is assumed that donors’ recurrent expenditure off-budget is moved onto the budget by 2020. The actual rate of transfer on-budget is uncertain.

^{^5/}Defined as domestic revenues minus operating expenditures.

^{^6/}In months of next year’s import of goods and services.

^{^7/}Public sector only. Incorporates committed but not yet delivered debt relief. Debt relief recorded fully at time of commitment.

^{^8/}Incorporates the 2012 revision to the UN World Population Prospects.

Table 2.

Islamic Republic of Afghanistan: Medium-Term Macroeconomic Framework, 2012–20

			2012	2013	2014	2015	2016	2017	2018	2019	2020
			Act.	Act.	Act.	Proj.	Proj.	Proj.	Proj.	Proj.	Proj.
Output and prices ^1/			(Annual percentage change, unless otherwise indicated)
	Real GDP		14.0	3.9	1.3	2.0	3.0	4.0	5.0	6.0	6.0
	Nominal GDP (in billions of U.S. dollars)		20.3	20.2	20.4	19.4	19.6	20.9	22.2	23.8	25.4
	Consumer prices (period average) ^2/		6.4	7.4	4.7	−1.3	3.1	5.0	5.0	5.0	5.0
Investment and savings ^2/			(In percent of GDP, unless otherwise indicated)
	Gross domestic investment		25.8	22.9	21.5	21.9	21.7	22.3	23.0	25.5	24.2
		Of which: Private	7.2	6.6	5.9	5.7	6.5	7.8	9.4	13.0	13.3
	Gross national savings		31.8	30.4	27.8	26.4	23.7	21.6	20.7	20.6	19.5
		Of which: Private	13.1	14.7	13.9	10.2	8.6	7.0	7.1	8.2	8.7
Public finances (central government) ^3/
	Domestic revenues and grants		25.2	24.3	23.9	28.5	30.2	31.8	32.6	33.5	34.5
		Domestic revenues	10.1	9.8	8.5	9.7	10.6	11.3	11.9	12.5	13.0
		Grants	15.1	14.6	15.4	18.8	19.6	20.5	20.7	21.1	21.5
	Expenditures		25.0	25.0	25.6	28.5	30.3	31.6	32.6	33.6	34.6
		Operating ^4/	18.2	17.8	19.4	21.5	22.9	24.0	25.0	25.8	26.6
		Development	6.8	7.2	6.2	7.0	7.4	7.6	7.6	7.8	8.0
	Operating balance (excluding grants) ^5/		−8.1	−8.0	−10.9	−11.8	−12.2	−12.7	−13.1	−13.3	−13.6
	Overall budget balance (including grants)		0.2	−0.6	−1.7	0.0	−0.1	0.2	0.0	−0.1	0.0
External sector ^1/
	Merchandise trade balance		−46.7	−42.3	−39.6	−40.9	−41.9	−41.3	−39.8	−38.7	−34.2
	Current account balance, excluding official grants		−42.1	−35.5	−37.0	−40.9	−42.0	−41.4	−39.7	−38.6	−34.6
	Gross reserves (in millions of U.S. dollars)		6,867	6,886	7,248	7,110	7,500	7,650	7,700	7,700	7,800
		Import coverage of reserves ^6/	7.3	7.6	8.2	7.7	7.6	7.4	6.9	6.8	6.7
Memorandum items:
	Total public debt ^7/		6.8	6.9	6.4	7.0	6.8	6.7	9.4	9.4	9.3
		Of which: External debt	6.8	6.9	6.4	7.0	6.8	6.7	6.5	6.3	6.1
		Domestic debt	0.0	0.0	0.0	0.0	0.0	0.0	2.8	3.1	3.2
	GDP per capita (in U.S. dollars) ^8/		680	660	654	606	597	625	650	681	713

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

^{^1/}Excluding the narcotics economy.

^{^2/}Revised with improved coverage.

^{^3/}For comparison, 2012 is recalculated from data reported on the solar fiscal year basis.

^{^4/}Comprising mainly current spending. It is assumed that donors’ recurrent expenditure off-budget is moved onto the budget by 2020. The actual rate of transfer on-budget is uncertain.

^{^5/}Defined as domestic revenues minus operating expenditures.

^{^6/}In months of next year’s import of goods and services.

^{^7/}Public sector only. Incorporates committed but not yet delivered debt relief. Debt relief recorded fully at time of commitment.

^{^8/}Incorporates the 2012 revision to the UN World Population Prospects.

Table 3a.

Islamic Republic of Afghanistan: Central Government Budget, 2013–15

(In billions of Afghanis)

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

^{^1/}Slight differences in the financing and memorandum items from the SMP staff report are due to updated quarter 1 data on claims on government and pro-poor spend

^{^2/}ARTF: Afghanistan Reconstruction Trust Fund; LOTFA: Law and Order Trust Fund for Afghanistan; CSTC-A: Combined Security Transition Command - Afghanistan (now NTM-A: NATO Training Mission - Afghanistan)

^{^3/}2015 figure includes about Af 2.85 billion arrears.

^{^4/}2015 figure includes about Af 7 billion discretionary development arrears.

^{^5/}Positive number indicates that expenditures have been recorded, but not yet executed.

^{^6/}Includes signature bonus payments for the Aynak copper mine.

^{^7/}Propoor spending covers ministries of education, labor and social affairs, martyrs and disabled, public health.

Table 3a.

Islamic Republic of Afghanistan: Central Government Budget, 2013–15

(In billions of Afghanis)

					2013	2014	2015							2015
					FY	FY	Q1	Q2		Q3		Q4		FY
					Act.	Act.	Est. ^1/	SMP	Est.	SMP	Est.	SMP	Proj.	SMP ^1/	Proj.
Revenues and grants					271.9	280.2	70.5	61.4	76.8	93.7	64.5	115.7	125.3	341.3	337.1
	Domestic revenues				109.0	100.0	24.1	22.6	28.2	34.9	28.8	38.8	33.2	120.4	114.3
		Tax revenues			77.4	78.1	14.2	20.3	22.7	26.7	21.1	26.5	32.3	87.8	90.3
			Income, profits, and capital gains		27.4	29.5	4.6	7.8	8.4	9.0	8.0	7.2	11.8	28.7	32.8
			International trade and transactions		27.3	26.0	5.6	6.2	8.0	7.5	7.5	8.1	8.0	27.4	29.1
			Goods and services		17.3	16.6	3.3	4.4	4.7	8.2	4.6	9.2	9.8	25.1	22.4
			Other		5.4	5.9	0.7	1.9	1.6	2.0	1.1	2.1	2.7	6.6	6.1
		Nontax revenues			31.6	22.0	9.8	2.3	5.6	8.3	7.7	12.3	0.9	32.6	23.9
	Grants to operating budget ^2/				114.7	119.1	38.7	18.5	35.2	41.0	24.6	49.7	57.5	147.9	156.1
		ARTF			14.2	24.2	2.0	4.2	5.7	2.9	11.4	6.2	14.7	15.2	33.8
		LOTFA			22.4	25.9	7.1	10.3	7.2	12.3	6.4	20.9	6.0	50.7	26.7
		CSTC-A			74.5	68.4	29.5	2.2	22.3	21.4	6.8	19.6	36.8	72.8	95.4
		Other grants			3.6	0.6	0.1	1.7	0.0	4.4	0.0	2.9	0.0	9.2	0.2
	Grants to development budget				48.2	61.1	7.7	20.3	13.3	17.8	11.1	27.2	34.6	73.0	66.7
Total expenditures					278.9	300.5	44.3	83.7	82.2	92.3	82.5	121.6	127.9	342.0	336.8
	Operating expenditures				198.6	227.9	37.0	65.2	57.2	68.4	66.6	81.4	93.3	252.0	254.0
				Of which: Security	128.7	138.1	…	…	…	…	…	…	…	162.2	160.9
		Wages and salaries			139.5	150.2	31.4	39.7	37.3	42.1	40.8	43.9	50.5	157.2	160.0
		Purchases of goods and services ^3/			38.2	48.2	4.7	14.0	10.7	17.9	17.5	27.1	30.8	63.8	63.7
		Transfers, subsidies, and other			0.0	0.7	0.3	0.8	0.3	0.5	0.3	0.5	1.2	2.1	2.1
		Pensions			11.5	18.9	0.2	8.4	7.6	4.5	5.1	4.3	4.6	17.5	17.5
		Capital expenditures			8.4	9.4	0.3	2.2	0.9	3.2	2.8	5.4	6.2	11.1	10.2
		Interest			1.0	0.4	0.1	0.0	0.3	0.1	0.1	0.1	0.0	0.3	0.4
	Development expenditures:				80.4	72.6	7.3	18.5	25.0	23.9	15.9	40.3	34.6	90.0	82.9
		Infrastructure and natural resources			27.6	21.8	…	…	…	…	…	…	…	27.4	24.9
		Education			8.5	8.7	…	…	…	…	…	…	…	10.4	9.9
		Health			7.2	9.1	…	…	…	…	…	…	…	10.8	10.3
		Agriculture and rural development			22.4	24.9	…	…	…	…	…	…	…	32.1	28.5
		Discretionary ^4/			…	9.9	…	…	…	…	…	…	…	17.0	16.2
Operating balance excluding grants					−89.5	−127.9	−12.9	−42.6	−29.0	−33.5	−37.7	−42.6	−60.1	−131.6	−139.7
Overall budget balance including grants					−7.0	−20.3	26.2	−22.3	−5.4	1.4	−18.0	−6.0	−2.6	−0.7	0.2
	less: Kabul Bank bailout cost				0.0	−2.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0
Augmented overall budget balance					−7.0	−18.4	26.2	−22.3	−5.4	1.4	−18.0	−6.0	−2.6	−0.7	0.2
Float and discrepancy ^5/					10.5	−0.7	−6.4	0.0	11.5	0.0	−2.3	0.0	0.0	−6.4	2.8
Financing					−3.5	19.1	−19.8	14.9	−6.1	−1.4	20.3	6.0	2.6	−0.4	−3.0
	Sale of nonfinancial assets ^6/				0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0
	External loans (net)				1.4	1.8	0.2	0.2	0.2	0.4	0.0	0.4	0.8	1.2	1.2
	Domestic (net)				−4.9	17.2	−20.0	14.7	−6.3	−1.8	20.3	5.6	1.8	−1.5	−4.3
		Central bank, change in			−4.9	17.2	−20.0	14.7	−6.3	−1.8	20.3	5.6	1.8	−1.5	−4.3
			Government deposits		−4.7	20.3	−18.7	14.8	−7.7	−1.5	19.4	5.6	2.1	0.2	−4.9
			Claims on government		−0.2	−3.1	−1.4	−0.1	1.3	−0.3	0.9	0.0	−0.3	−1.8	0.6
Memorandum items:
	Promissory note (end-of-period stock)				29.1	27.7	27.9	28.0	28.0	28.2	28.2	28.3	28.3	28.3	28.3
	Propoor spending ^7/				25.1	36.6	6.5	8.1	7.3	8.1	8.7	8.1	10.0	32.4	32.4

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

^{^1/}Slight differences in the financing and memorandum items from the SMP staff report are due to updated quarter 1 data on claims on government and pro-poor spend

^{^3/}2015 figure includes about Af 2.85 billion arrears.

^{^4/}2015 figure includes about Af 7 billion discretionary development arrears.

^{^5/}Positive number indicates that expenditures have been recorded, but not yet executed.

^{^6/}Includes signature bonus payments for the Aynak copper mine.

^{^7/}Propoor spending covers ministries of education, labor and social affairs, martyrs and disabled, public health.

Table 3a.

Islamic Republic of Afghanistan: Central Government Budget, 2013–15

(In billions of Afghanis)

					2013	2014	2015							2015
					FY	FY	Q1	Q2		Q3		Q4		FY
					Act.	Act.	Est. ^1/	SMP	Est.	SMP	Est.	SMP	Proj.	SMP ^1/	Proj.
Revenues and grants					271.9	280.2	70.5	61.4	76.8	93.7	64.5	115.7	125.3	341.3	337.1
	Domestic revenues				109.0	100.0	24.1	22.6	28.2	34.9	28.8	38.8	33.2	120.4	114.3
		Tax revenues			77.4	78.1	14.2	20.3	22.7	26.7	21.1	26.5	32.3	87.8	90.3
			Income, profits, and capital gains		27.4	29.5	4.6	7.8	8.4	9.0	8.0	7.2	11.8	28.7	32.8
			International trade and transactions		27.3	26.0	5.6	6.2	8.0	7.5	7.5	8.1	8.0	27.4	29.1
			Goods and services		17.3	16.6	3.3	4.4	4.7	8.2	4.6	9.2	9.8	25.1	22.4
			Other		5.4	5.9	0.7	1.9	1.6	2.0	1.1	2.1	2.7	6.6	6.1
		Nontax revenues			31.6	22.0	9.8	2.3	5.6	8.3	7.7	12.3	0.9	32.6	23.9
	Grants to operating budget ^2/				114.7	119.1	38.7	18.5	35.2	41.0	24.6	49.7	57.5	147.9	156.1
		ARTF			14.2	24.2	2.0	4.2	5.7	2.9	11.4	6.2	14.7	15.2	33.8
		LOTFA			22.4	25.9	7.1	10.3	7.2	12.3	6.4	20.9	6.0	50.7	26.7
		CSTC-A			74.5	68.4	29.5	2.2	22.3	21.4	6.8	19.6	36.8	72.8	95.4
		Other grants			3.6	0.6	0.1	1.7	0.0	4.4	0.0	2.9	0.0	9.2	0.2
	Grants to development budget				48.2	61.1	7.7	20.3	13.3	17.8	11.1	27.2	34.6	73.0	66.7
Total expenditures					278.9	300.5	44.3	83.7	82.2	92.3	82.5	121.6	127.9	342.0	336.8
	Operating expenditures				198.6	227.9	37.0	65.2	57.2	68.4	66.6	81.4	93.3	252.0	254.0
				Of which: Security	128.7	138.1	…	…	…	…	…	…	…	162.2	160.9
		Wages and salaries			139.5	150.2	31.4	39.7	37.3	42.1	40.8	43.9	50.5	157.2	160.0
		Purchases of goods and services ^3/			38.2	48.2	4.7	14.0	10.7	17.9	17.5	27.1	30.8	63.8	63.7
		Transfers, subsidies, and other			0.0	0.7	0.3	0.8	0.3	0.5	0.3	0.5	1.2	2.1	2.1
		Pensions			11.5	18.9	0.2	8.4	7.6	4.5	5.1	4.3	4.6	17.5	17.5
		Capital expenditures			8.4	9.4	0.3	2.2	0.9	3.2	2.8	5.4	6.2	11.1	10.2
		Interest			1.0	0.4	0.1	0.0	0.3	0.1	0.1	0.1	0.0	0.3	0.4
	Development expenditures:				80.4	72.6	7.3	18.5	25.0	23.9	15.9	40.3	34.6	90.0	82.9
		Infrastructure and natural resources			27.6	21.8	…	…	…	…	…	…	…	27.4	24.9
		Education			8.5	8.7	…	…	…	…	…	…	…	10.4	9.9
		Health			7.2	9.1	…	…	…	…	…	…	…	10.8	10.3
		Agriculture and rural development			22.4	24.9	…	…	…	…	…	…	…	32.1	28.5
		Discretionary ^4/			…	9.9	…	…	…	…	…	…	…	17.0	16.2
Operating balance excluding grants					−89.5	−127.9	−12.9	−42.6	−29.0	−33.5	−37.7	−42.6	−60.1	−131.6	−139.7
Overall budget balance including grants					−7.0	−20.3	26.2	−22.3	−5.4	1.4	−18.0	−6.0	−2.6	−0.7	0.2
	less: Kabul Bank bailout cost				0.0	−2.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0
Augmented overall budget balance					−7.0	−18.4	26.2	−22.3	−5.4	1.4	−18.0	−6.0	−2.6	−0.7	0.2
Float and discrepancy ^5/					10.5	−0.7	−6.4	0.0	11.5	0.0	−2.3	0.0	0.0	−6.4	2.8
Financing					−3.5	19.1	−19.8	14.9	−6.1	−1.4	20.3	6.0	2.6	−0.4	−3.0
	Sale of nonfinancial assets ^6/				0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0
	External loans (net)				1.4	1.8	0.2	0.2	0.2	0.4	0.0	0.4	0.8	1.2	1.2
	Domestic (net)				−4.9	17.2	−20.0	14.7	−6.3	−1.8	20.3	5.6	1.8	−1.5	−4.3
		Central bank, change in			−4.9	17.2	−20.0	14.7	−6.3	−1.8	20.3	5.6	1.8	−1.5	−4.3
			Government deposits		−4.7	20.3	−18.7	14.8	−7.7	−1.5	19.4	5.6	2.1	0.2	−4.9
			Claims on government		−0.2	−3.1	−1.4	−0.1	1.3	−0.3	0.9	0.0	−0.3	−1.8	0.6
Memorandum items:
	Promissory note (end-of-period stock)				29.1	27.7	27.9	28.0	28.0	28.2	28.2	28.3	28.3	28.3	28.3
	Propoor spending ^7/				25.1	36.6	6.5	8.1	7.3	8.1	8.7	8.1	10.0	32.4	32.4

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

^{^1/}Slight differences in the financing and memorandum items from the SMP staff report are due to updated quarter 1 data on claims on government and pro-poor spend

^{^3/}2015 figure includes about Af 2.85 billion arrears.

^{^4/}2015 figure includes about Af 7 billion discretionary development arrears.

^{^5/}Positive number indicates that expenditures have been recorded, but not yet executed.

^{^6/}Includes signature bonus payments for the Aynak copper mine.

^{^7/}Propoor spending covers ministries of education, labor and social affairs, martyrs and disabled, public health.

Table 3b.

Islamic Republic of Afghanistan: Central Government Budget, 2013–15

(In percent of GDP)

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

^{^1/}The difference between the current and SMP quarter 1 estimates are due to lowered nominal GDP projection for 2015, and updated quarter 1 data on claims on government and pro-poor spending.

^{^3/}2015 figure includes about Af 2.85 billion arrears.

^{^4/}2015 figure includes about Af 7 billion discretionary development arrears.

^{^5/}Positive number indicates that expenditures have been recorded, but not yet executed.

^{^6/}Includes signature bonus payments for the Aynak copper mine.

^{^7/}Propoor spending covers ministries of education, labor and social affairs, martyrs and disabled, public health.

Table 3b.

Islamic Republic of Afghanistan: Central Government Budget, 2013–15

(In percent of GDP)

					2013	2014	2015								2015
					FY	FY	Q1		Q2		Q3		Q4		FY
					Act.	Act.	SMP Est.	Est. ^1/	SMP	Est.	SMP	Est.	SMP	Proj.	SMP	Proj.
Revenues and grants					24.3	23.9	5.6	6.0	4.9	6.5	7.5	5.4	9.3	10.6	27.3	28.5
	Domestic revenues				9.8	8.5	1.9	2.0	1.8	2.4	2.8	2.4	3.1	2.8	9.6	9.7
		Tax revenues			6.9	6.7	1.1	1.2	1.6	1.9	2.1	1.8	2.1	2.7	7.0	7.6
			Income, profits, and capital gains		2.5	2.5	0.4	0.4	0.6	0.7	0.7	0.7	0.6	1.0	2.3	2.8
			International trade and transactions		2.4	2.2	0.5	0.5	0.5	0.7	0.6	0.6	0.6	0.7	2.2	2.5
			Goods and services		1.5	1.4	0.3	0.3	0.4	0.4	0.7	0.4	0.7	0.8	2.0	1.9
			Other		0.5	0.5	0.1	0.1	0.1	0.1	0.2	0.1	0.2	0.2	0.5	0.5
		Nontax revenues			2.8	1.9	0.8	0.8	0.2	0.5	0.7	0.7	1.0	0.1	2.6	2.0
	Grants to operating budget ^2/				10.3	10.2	3.1	3.3	1.5	3.0	3.3	2.1	4.0	4.9	11.8	13.2
		ARTF			1.3	2.1	0.2	0.2	0.3	0.5	0.2	1.0	0.5	1.2	1.2	2.9
		LOTFA			2.0	2.2	0.6	0.6	0.8	0.6	1.0	0.5	1.7	0.5	4.1	2.3
		CSTC-A			6.7	5.8	2.4	2.5	0.2	1.9	1.7	0.6	1.6	3.1	5.8	8.1
		Other grants			0.3	0.0	0.0	0.0	0.1	0.0	0.4	0.0	0.2	0.0	0.7	0.0
	Grants to development budget				4.3	5.2	0.6	0.6	1.6	1.1	1.4	0.9	2.2	2.9	5.8	5.6
Total expenditures					25.0	25.6	3.5	3.7	6.7	6.9	7.4	7.0	9.7	10.8	27.4	28.5
	Operating expenditures				17.8	19.4	3.0	3.1	5.2	4.8	5.5	5.6	6.5	7.9	20.2	21.5
				Of which: Security	11.5	11.8	…	…		…	…	…	…	…	13.0	13.6
		Wages and salaries			12.5	12.8	2.5	2.6	3.2	3.2	3.4	3.4	3.5	4.3	12.6	13.5
		Purchases of goods and services ^3/			3.4	4.1	0.4	0.4	1.1	0.9	1.4	1.5	2.2	2.6	5.1	5.4
		Transfers, subsidies, and other			0.0	0.1	0.0	0.0	0.1	0.0	0.0	0.0	0.0	0.1	0.2	0.2
		Pensions			1.0	1.6	0.0	0.0	0.7	0.6	0.4	0.4	0.3	0.4	1.4	1.5
		Capital expenditures			0.7	0.8	0.0	0.0	0.2	0.1	0.3	0.2	0.4	0.5	0.9	0.9
		Interest			0.1	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0
	Development expenditures:				7.2	6.2	0.6	0.6	1.5	2.1	1.9	1.3	3.2	2.9	7.2	7.0
		Infrastructure and natural resources			2.5	1.9	…	…	…	…	…	…	…	…	2.2	2.1
		Education			0.8	0.7	…	…	…	…	…	…	…	…	0.8	0.8
		Health			0.6	0.8	…	…	…	…	…	…	…	…	0.9	0.9
		Agriculture and rural development			2.0	2.1	…	…	…	…	…	…	…	…	2.6	2.4
		Discretionary ^4/			…	0.8	…	…	…	…	…	…	…	…	1.4	1.4
Operating balance excluding grants					−8.0	−10.9	−1.0	−1.1	−3.4	−2.4	−2.7	−3.2	−3.4	−5.1	−10.5	−11.8
Overall budget balance including grants					−0.6	−1.7	2.1	2.2	−1.8	−0.5	0.1	−1.5	−0.5	−0.2	−0.1	0.0
	less: Kabul Bank bailout cost				0.0	−0.2	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0
Augmented overall budget balance					−0.6	−1.6	2.1	2.2	−1.8	−0.5	0.1	−1.5	−0.5	−0.2	−0.1	0.0
Float and discrepancy ^5/					0.9	−0.1	−0.6	−0.5	0.0	1.0	0.0	−0.2	0.0	0.0	−0.6	0.2
Financing					−0.3	1.6	−1.5	−1.7	1.2	−0.5	−0.1	1.7	0.5	0.2	0.1	−0.3
	Sale of nonfinancial assets ^6/				0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0
	External loans (net)				0.1	0.2	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.1	0.1	0.1
	Domestic (net)				−0.4	1.5	−1.5	−1.7	1.2	−0.5	−0.1	1.7	0.4	0.2	0.0	−0.4
		Central bank, change in			−0.4	1.5	−1.5	−1.7	1.2	−0.5	−0.1	1.7	0.4	0.2	0.0	−0.4
			Government deposits		−0.4	1.7	−1.5	−1.6	1.2	−0.6	−0.1	1.6	0.5	0.2	0.0	−0.4
			Claims on government		0.0	−0.3	0.0	−0.1	0.0	0.1	0.0	0.1	0.0	0.0	−0.1	0.1
Memorandum items:
	Promissory note (end-of-period stock)				2.6	2.4	2.2	2.4	2.2	2.4	2.3	2.4	2.3	2.4	2.3	2.4
	Propoor spending ^7/				2.2	3.1	0.7	0.5	0.6	0.6	0.6	0.7	0.7	0.8	2.6	2.7

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

^{^1/}The difference between the current and SMP quarter 1 estimates are due to lowered nominal GDP projection for 2015, and updated quarter 1 data on claims on government and pro-poor spending.

^{^3/}2015 figure includes about Af 2.85 billion arrears.

^{^4/}2015 figure includes about Af 7 billion discretionary development arrears.

^{^5/}Positive number indicates that expenditures have been recorded, but not yet executed.

^{^6/}Includes signature bonus payments for the Aynak copper mine.

^{^7/}Propoor spending covers ministries of education, labor and social affairs, martyrs and disabled, public health.

Table 3b.

Islamic Republic of Afghanistan: Central Government Budget, 2013–15

(In percent of GDP)

					2013	2014	2015								2015
					FY	FY	Q1		Q2		Q3		Q4		FY
					Act.	Act.	SMP Est.	Est. ^1/	SMP	Est.	SMP	Est.	SMP	Proj.	SMP	Proj.
Revenues and grants					24.3	23.9	5.6	6.0	4.9	6.5	7.5	5.4	9.3	10.6	27.3	28.5
	Domestic revenues				9.8	8.5	1.9	2.0	1.8	2.4	2.8	2.4	3.1	2.8	9.6	9.7
		Tax revenues			6.9	6.7	1.1	1.2	1.6	1.9	2.1	1.8	2.1	2.7	7.0	7.6
			Income, profits, and capital gains		2.5	2.5	0.4	0.4	0.6	0.7	0.7	0.7	0.6	1.0	2.3	2.8
			International trade and transactions		2.4	2.2	0.5	0.5	0.5	0.7	0.6	0.6	0.6	0.7	2.2	2.5
			Goods and services		1.5	1.4	0.3	0.3	0.4	0.4	0.7	0.4	0.7	0.8	2.0	1.9
			Other		0.5	0.5	0.1	0.1	0.1	0.1	0.2	0.1	0.2	0.2	0.5	0.5
		Nontax revenues			2.8	1.9	0.8	0.8	0.2	0.5	0.7	0.7	1.0	0.1	2.6	2.0
	Grants to operating budget ^2/				10.3	10.2	3.1	3.3	1.5	3.0	3.3	2.1	4.0	4.9	11.8	13.2
		ARTF			1.3	2.1	0.2	0.2	0.3	0.5	0.2	1.0	0.5	1.2	1.2	2.9
		LOTFA			2.0	2.2	0.6	0.6	0.8	0.6	1.0	0.5	1.7	0.5	4.1	2.3
		CSTC-A			6.7	5.8	2.4	2.5	0.2	1.9	1.7	0.6	1.6	3.1	5.8	8.1
		Other grants			0.3	0.0	0.0	0.0	0.1	0.0	0.4	0.0	0.2	0.0	0.7	0.0
	Grants to development budget				4.3	5.2	0.6	0.6	1.6	1.1	1.4	0.9	2.2	2.9	5.8	5.6
Total expenditures					25.0	25.6	3.5	3.7	6.7	6.9	7.4	7.0	9.7	10.8	27.4	28.5
	Operating expenditures				17.8	19.4	3.0	3.1	5.2	4.8	5.5	5.6	6.5	7.9	20.2	21.5
				Of which: Security	11.5	11.8	…	…		…	…	…	…	…	13.0	13.6
		Wages and salaries			12.5	12.8	2.5	2.6	3.2	3.2	3.4	3.4	3.5	4.3	12.6	13.5
		Purchases of goods and services ^3/			3.4	4.1	0.4	0.4	1.1	0.9	1.4	1.5	2.2	2.6	5.1	5.4
		Transfers, subsidies, and other			0.0	0.1	0.0	0.0	0.1	0.0	0.0	0.0	0.0	0.1	0.2	0.2
		Pensions			1.0	1.6	0.0	0.0	0.7	0.6	0.4	0.4	0.3	0.4	1.4	1.5
		Capital expenditures			0.7	0.8	0.0	0.0	0.2	0.1	0.3	0.2	0.4	0.5	0.9	0.9
		Interest			0.1	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0
	Development expenditures:				7.2	6.2	0.6	0.6	1.5	2.1	1.9	1.3	3.2	2.9	7.2	7.0
		Infrastructure and natural resources			2.5	1.9	…	…	…	…	…	…	…	…	2.2	2.1
		Education			0.8	0.7	…	…	…	…	…	…	…	…	0.8	0.8
		Health			0.6	0.8	…	…	…	…	…	…	…	…	0.9	0.9
		Agriculture and rural development			2.0	2.1	…	…	…	…	…	…	…	…	2.6	2.4
		Discretionary ^4/			…	0.8	…	…	…	…	…	…	…	…	1.4	1.4
Operating balance excluding grants					−8.0	−10.9	−1.0	−1.1	−3.4	−2.4	−2.7	−3.2	−3.4	−5.1	−10.5	−11.8
Overall budget balance including grants					−0.6	−1.7	2.1	2.2	−1.8	−0.5	0.1	−1.5	−0.5	−0.2	−0.1	0.0
	less: Kabul Bank bailout cost				0.0	−0.2	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0
Augmented overall budget balance					−0.6	−1.6	2.1	2.2	−1.8	−0.5	0.1	−1.5	−0.5	−0.2	−0.1	0.0
Float and discrepancy ^5/					0.9	−0.1	−0.6	−0.5	0.0	1.0	0.0	−0.2	0.0	0.0	−0.6	0.2
Financing					−0.3	1.6	−1.5	−1.7	1.2	−0.5	−0.1	1.7	0.5	0.2	0.1	−0.3
	Sale of nonfinancial assets ^6/				0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0
	External loans (net)				0.1	0.2	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.1	0.1	0.1
	Domestic (net)				−0.4	1.5	−1.5	−1.7	1.2	−0.5	−0.1	1.7	0.4	0.2	0.0	−0.4
		Central bank, change in			−0.4	1.5	−1.5	−1.7	1.2	−0.5	−0.1	1.7	0.4	0.2	0.0	−0.4
			Government deposits		−0.4	1.7	−1.5	−1.6	1.2	−0.6	−0.1	1.6	0.5	0.2	0.0	−0.4
			Claims on government		0.0	−0.3	0.0	−0.1	0.0	0.1	0.0	0.1	0.0	0.0	−0.1	0.1
Memorandum items:
	Promissory note (end-of-period stock)				2.6	2.4	2.2	2.4	2.2	2.4	2.3	2.4	2.3	2.4	2.3	2.4
	Propoor spending ^7/				2.2	3.1	0.7	0.5	0.6	0.6	0.6	0.7	0.7	0.8	2.6	2.7

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

^{^1/}The difference between the current and SMP quarter 1 estimates are due to lowered nominal GDP projection for 2015, and updated quarter 1 data on claims on government and pro-poor spending.

^{^3/}2015 figure includes about Af 2.85 billion arrears.

^{^4/}2015 figure includes about Af 7 billion discretionary development arrears.

^{^5/}Positive number indicates that expenditures have been recorded, but not yet executed.

^{^6/}Includes signature bonus payments for the Aynak copper mine.

^{^7/}Propoor spending covers ministries of education, labor and social affairs, martyrs and disabled, public health.

Table 4a.

Islamic Republic of Afghanistan: Central Bank Balance Sheet, 2013–15

(At current exchange rates)

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

^{^1/}A nonmarketable security issued to DAB by the ministry of finance for the cost of a lender of last resort assistance to Kabul Bank.

^{^2/}Includes Afghanistan’s SDR holdings (MoF is the fiscal agent for the IMF).

Table 4a.

Islamic Republic of Afghanistan: Central Bank Balance Sheet, 2013–15

(At current exchange rates)

					2013	2014				2015
					Dec. 21	Dec. 21	March 19	March 19	June 21	June 21	Sep. 22	Sep. 22	Dec. 21	Dec. 21
					Act.	Act.	SMP	Prel.	SMP	Prel.	SMP	Prel.	SMP	Proj.
					(In billions of Afghanis, unless otherwise indicated)
Net foreign assets					382.5	409.4	412.7	408.0	413.9	433.1	416.1	445.0	418.3	446.4
	Foreign assets				403.8	429.0	430.8	426.0	432.8	452.4	434.6	465.0	436.6	466.1
		Foreign exchange reserves			390.0	420.9	422.7	418.3	424.6	444.7	426.4	454.0	428.4	455.0
		Other foreign assets			13.8	8.1	8.1	7.8	8.2	7.7	8.2	11.0	8.3	11.1
	Foreign liabilities				−21.2	−19.5	−18.1	−18.1	−19.0	−19.3	−18.5	−20.0	−18.3	−19.6
Net domestic assets					−183.8	−184.2	−193.5	−200.8	−185.7	−224.7	−170.8	−226.0	−168.3	−205.5
	Domestic assets				−110.8	−105.5	−117.1	−122.8	−117.5	−132.1	−109.8	−106.7	−100.6	−90.1
		Net claims on government			−58.9	−41.6	−61.7	−61.6	−45.9	−68.0	−47.7	−47.7	−42.1	−46.0
			Gross claims on government		50.3	47.3	45.9	45.9	46.9	47.2	46.6	48.1	46.6	47.9
				Of which: MoF promissory note ^1/	29.1	27.7	27.9	27.9	28.0	28.0	28.2	28.2	28.3	28.3
			Domestic currency deposits		−18.3	−20.0	−24.6	−21.3	−20.9	−27.1	−21.3	−16.8	−19.9	−16.5
			Foreign currency deposits ^2/		−90.9	−68.9	−83.0	−86.3	−71.9	−88.1	−73.0	−79.0	−68.8	−77.4
		Other claims			−52.0	−63.9	−55.3	−61.1	−71.6	−64.1	−62.1	−59.0	−58.5	−44.2
	Other items net				−73.0	−78.7	−76.5	−78.0	−68.3	−92.6	−61.0	−119.2	−67.7	−115.3
Reserve money					198.8	225.2	219.2	207.2	228.2	208.5	245.3	219.0	250.0	241.0
	Currency in circulation				168.8	197.0	193.0	182.4	203.6	187.4	216.6	195.5	218.6	210.8
	Bank deposits (Afghani denominated)				30.0	28.2	26.2	24.8	24.6	21.1	28.7	23.5	31.3	30.2
Memorandum items:
	International reserves, in millions of U.S. dollars
		Net			6,382	6,694	6,737	6,706	6,769	6,816	6,806	6,583	6,844	6,675
		Gross			6,886	7,248	7,278	7,238	7,313	7,324	7,342	7,022	7,377	7,110
	Interest rate, 28-day capital notes (percent)				3.4	3.5	…	3.4	…	…	…	…	…	…
	Exchange rate (Afghanis per U.S. dollar)				56.6	58.1	…	57.8	…	…	…	…	…	…

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

^{^1/}A

Topics

Countries

Series

About

Resources

Abstract

Context

Recent Developments

Outlook and Risks

Policy Discussions: Strengthening Confidence Now for Economic Transformation

A. Inclusive Growth and Productivity

B. External Stability and Exchange Rate

C. Fiscal Outlook and Debt Sustainability

D. Monetary and Exchange Rate Policy

E. Financial Sector

F. Business Environment

G. Protecting the Poor

J. Other Issues

Performance Under the Staff-Monitored Program

Staff Appraisal