## 1afgea2020001

## Source details

**Canonical URL:** [1afgea2020001](https://www.imf.org/-/media/files/publications/cr/2020/english/1afgea2020001.pdf)

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---

### Mission overview and objectives
- A technical assistance (TA) mission on external sector statistics (ESS) was conducted in Amman, Jordan, during March 31–April 10, 2019, for the Da Afghanistan Bank (DAB).
- Mission objectives: assist the DAB in improving the quality of the balance of payments and international investment position (IIP) statistics.
- Mission noted DAB’s Monetary Policy Department (MPD) achieved most of the 2018 TA recommendations.
- Mission focus areas:
  - reviewing and suggesting improvements to the International Transactions Reporting System (ITRS);
  - examining recording of foreign direct investment (FDI) of other depositary corporations (ODC) in the balance of payments and IIP;
  - assessing data quality and methodological treatment of personal remittances and general government transfers;
  - evaluating possibility of estimating opium exports.

### Key findings and major shortcomings
- Afghanistan’s balance of payments and IIP have considerable gaps in the coverage of the current and financial accounts.
- Major data gaps:
  - unrecorded personal remittances;
  - military aid;
  - illegal exports.
- Errors and omissions are significantly high and persistent.
- Remittances through autonomous Money Service Providers (MSPs) and informal channels are not captured; there appears to be a large remittance channel outside current administrative sources.
- MPD implemented an ITRS that only collects ODC data, excluding the central bank from its coverage.
- Current ITRS is labor-intensive, based on spreadsheets (not associated with any data base), with limited data validations.
- Important discrepancies detected between ITRS output data and administrative sourced data.
- Direct investment data have major limitations in coverage and classification.
- Inclusion of the opium economy will have significant impact in the national and international accounts; NSIA is finalizing incorporation of illicit drugs production (opium) in the GDP calculation for 2016–18 and will provide estimated illegal exports and imports data associated with narcotics.

### Highest-priority recommendations
- Target Date: January 2020 — Update the current ITRS coding and instructions for aligning to BPM6 and streamlining/customizing to Afghan-specific transactions (remittances, other services, and others). — Responsible: MPD
- Target Date: January 2020 — Conduct the direct investment pilot survey. — Responsible: MPD
- Target Date: January 2020 — In coordination with the DAB’s relevant departments, prepare a work plan for estimating on regular basis the remittances not captured by administrative data or ITRS. — Responsible: MPD

### Action plan highlights (prioritized actions and milestones)
- Outcome: Source data are adequate for compilation.
  - H: Strengthen the validation of the current ITRS. — Target Completion Date: October 2019 and onwards.
  - H: Update the current ITRS coding and instructions for aligning to BPM6 and streamlining/customizing to Afghan-specific transactions (remittances, other services, and others). — Target Completion Date: January 2020.
  - M: Draft initial technical requirements for enhancing the ITRS— including ODC and central bank; resources needed, requested indicators, validation rules, submission requirements (format, periodicity, timeliness). — Target Completion Date: December 2019.
  - H: Define enterprises for a direct investment pilot survey—approximately 10 to 15 enterprises across communications, hotels, postal services, agriculture, mining, and construction. — Target Completion Date: October 2019.
  - H: Conduct the direct investment pilot survey. — Target Completion Date: January 2020.
  - H: Base on the pilot results, evaluate way forward for a full-fledged survey in Kabul. — Target Completion Date: March 2020.
  - H: Compile direct investment data of the banking sector for 2015–17, sourced by audited financial statements (reconciliation of equity). — Target Completion Date: November 2019.
  - H: Compile FDI data of the ODC for 2018 Q1, Q2, Q3 and onwards, sourced by the updated FDI survey for ODC. — Target Completion Date: November 2019 and onwards.
  - H: Keep expanding remittances survey coverage for capturing MTOs and licensed hawalas remittances data. — Target Completion Date: On a regular basis.
  - H: MPD, with relevant DAB departments and senior management support, to prepare a work plan for estimating remittances not captured by the ITRS; work plan to specify responsible unit and periodicity. — Target Completion Date: January 2020.
  - H: MPD and other relevant DAB departments to collect available secondary data (national and international) to complement remittances estimation. — Target Completion Date: November 2019.
  - H: Request NSIA to add a remittances section in the households survey. — Target Completion Date: February 2020 and onwards.
  - H: NSIA to be incorporated into the remittances project as a data source provider. — Target Completion Date: March 2020.
  - H: DAB to estimate on a regular basis the remittances not captured by administrative data or ITRS. — Target Completion Date: September 2020 and onwards.
  - H: Implement current and capital transfers offsetting (grants in cash, technical assistance, development projects) based on Ministry of Finance information and following the model proposed in the 2018 TA mission. — Target Completion Date: March 2020.
  - H: NSIA to provide to MPD estimated data of total illegal exports of narcotics and total of imports not recorded in customs related to illegal production of narcotics. — Target Completion Date: December 2019.
  - H: Include in the balance of payments the estimated data of illegal exports and imports related to narcotic production (opium) for 2016–18 and prepare corresponding estimated offsetting entries. — Target Completion Date: January 2020.

- Outcome: Data compiled and disseminated using appropriate statistical techniques.
  - H: DAB’s Accounting Department to provide reserves assets data to MPD on accrual basis or market value—depending on the financial instrument—with needed sectoral breakdown according to the reserve format (central bank, ODC, other financial corporations). — Target Completion Date: November 2019 and onwards.
  - H: Use available data on reserves to complete the asset section of the template on IRFCL. — Target Completion Date: November 2019.
  - H: Review data consistency between ESS and MFS on reserve assets. — Target Completion Date: November 2019.
  - H: Develop a draft estimation of predeterminate short-term net drains on foreign currency assets (nominal value) for categories: (i) up to one, month, (ii) more than one month and up to three months, and (iii) more than three months and up to one year. — Target Completion Date: March 2020.

- Outcome: Staff capacity increased through training.
  - M: DAB’s management to nominate staff for training courses at the IMF HQ, regional training centers, and other international organizations. — Target Completion: Ongoing.
  - M: MPD to maintain staff trained in different duties associated with ESS compilation; to manage staff turnover. — Target Completion: Permanent.
  - H: Organize staff visits to partner countries for exchange of experience in compiling ESS (subject to funding availability), with priority topic the operation of the ITRS. — Target Completion: Once a year.

- Outcome: Data access to the public improved.
  - H: Direction of Trade (DOT) data should be permanently reconciled with balance of payments statistics prepared by the MPD. — Target Completion: Ongoing basis.

### Strengthening the data collection system — ITRS assessment and revamping
- Current ITRS characteristics and limitations:
  - Provides data sourced from commercial banks and used for compiling many balance of payments and IIP components.
  - Focus needed on strengthening ITRS data validation procedures and reinforcing internal procedures (including requirement of supporting documents from banks for statistical outliers).
  - Current ITRS collects only ODC data and excludes the central bank.
  - Current ITRS is reported on quarterly basis, labor-intensive, based on spreadsheets (not a database), with minor validations at bank level.
  - Current ITRS may be a source of significant under coverage and misclassifications for balance of payments compilation.

- Objectives and design principles for an enhanced ITRS:
  - ITRS should serve as the main source of information for balance of payments compilation.
  - Enhancements should include revised design with expanded coverage—including the central bank—and significant changes in data processing from data entry to validation.
  - Fundamental design principles:
    - use of standardized coding system—aligned to Afghanistan needs;
    - data derived from core banking and linked to bank’s operational day;
    - data collected and monitored centrally;
    - system to be IT-backed and flexible to accommodate respondents’ requirements;
    - applied IT and hardware compatible with a variety of IT platforms in the banks.

- Prerequisites for ITRS enhancement:
  - strong top level managerial support in the DAB and well prioritized planning;
  - strong cooperation with reporting banks, including banks’ involvement in design and implementation;
  - sufficient IT and staff resources in DAB and banks;
  - adequate level of IT development;
  - quality of report forms and collection procedures;
  - training of respondents.

- ITRS reporting procedure recommendations (selected):
  - Report form to be submitted on direct correspondent accounts with nonresident banks and on current accounts of nonresident clients; filled separately for each correspondent account.
  - Report form to include: name of the bank, account number, reporting period, currency of the account, transacting domestic entity (bank, nonfinancial corporation, other financial institution, individual, government), code of transaction, country of transactions, and value of transaction (credit or debit).
  - Preferable to convert system into a closed system where banks report all movements on each correspondent account together with beginning and end of period positions to enable verification, harmonization with positions and transactions, and validation with MFS.
  - Not all movements on correspondent accounts give rise to a balance of payments transaction — a special code is to be assigned for aggregated data on non-balance of payments (neutral transactions); Appendix IV provides practical examples of neutral transactions.
  - Banks are to provide monthly aggregated data in a single electronic form accompanied with detailed instructions. Appendix V contains suggested codes for capital and financial account transactions.
- Implementation requires DAB senior management support, trained staff able to check individual bank reports, and adequate IT resources.

### ITRS Action Plan: main components and general milestone
- Main components:
  - (i) modifications in the ITRS design;
  - (ii) development of the report forms with the explanatory notes;
  - (iii) report forms’ field testing;
  - (iv) development of the IT for all ITRS constituencies;
  - (v) ITRS pilot testing for banks;
  - (vi) ITRS implementation for banks;
  - (vii) development of the ITRS initial data verification and validation procedures;
  - (viii) elaboration of the ITRS intermediate data verification and validation procedures; and
  - (ix) the ITRS consulting and training.
- Suggested general action plan for ITRS enhancement is given in Appendix VI.
- Major milestone: development of relevant software and network reporting protocols for the banks.
- Enhanced ITRS IT segments required:
  - (i) initial data input, verification, and transmission to MPD;
  - (ii) source data processing and validation;
  - (iii) source data aggregation, conversion in one unit of account, validation of intermediate results for the reporting period; and
  - (iv) intermediate data processing, time-series analysis, incorporation into the main balance of payments compilation.
- ITRS IT support should be of a long-term nature to ensure sustainability.

### Joint DAB–banks ITRS working group: expected outcomes
- Expected outcomes:
  - (i) update the ITRS report form—according to the sixth edition of the Balance of Payments and International Investment Position Manual (BPM6) and customizing to Afghanistan’s specific needs—and draft explanatory note;
  - (ii) ensure the consistency between the balance of payments reporting requirements and banking accounting practices;
  - (iii) electronic data transmission and validation;
  - (iv) effective list of the transactions codes; and
  - (v) modalities of the ITRS consulting and training.

### Data verification and validation procedures (ITRS)
- Need to develop verification at stages:
  - (i) when data are received from banks and entered into the MPD database;
  - (ii) after worksheets are prepared; and
  - (iii) when the aggregated ITRS data are prepared.
- Data validation for initial banks data should include on-site banks inspections.
- Recommended Actions (ITRS):
  - Strengthen the validation of the current ITRS.
  - Update the current ITRS coding and instructions for aligning to BPM6 and for streamlining/customizing to Afghan-specific transactions (remittances, other services, and others).
  - Draft the initial technical requirements for enhancing the ITRS—including ODC and central bank, which should comprise resources needed, requested indicators, validation rules, submission requirements (format, periodicity, timeliness, and others).

### Direct Investment for Nonfinancial Corporations — issues and pilot survey
- Current compilation approach:
  - Direct investment compiled using initial commitment (approvals) of the investors to invest in licensed projects.
  - Full commitment amount currently registered under direct investment—equity in the balance of payments for the period when the commitment was made.
- Major limitations:
  - I. coverage—often not all of the committed amount is invested, or investment could exceed the committed one;
  - II. timing—the committed amount is invested over the agreed investment period that, in most cases, could be a number of years; committed amount should be registered when realized. If de facto investment by period is unknown, the committed amount should be equally split into the number of years/quarters of the implementation period;
  - III. classification—the committed investment could be financed through:
    - (a) funds invested as equity capital;
    - (b) loans from the parent company or from other affiliated entities; and
    - (c) debt liabilities (loans, debt securities) to nonaffiliated creditors.
    - These components should be classified in balance of payments respectively as equity, debt instruments, and debt securities (portfolio investment)/loans (other investment).
- Security environment constraint: affects ability to run a full-fledged direct investment survey for nonfinancial corporations.
- Pilot survey recommendation:
  - Apply a pilot survey to the top 10–15 FDI enterprises in Kabul to evaluate rate of response and reliability.
  - MPD staff to conduct this one-time pilot survey; list of companies to be defined jointly by the Central Business Registry and Intellectual Property Department, the NSIA, and the current ITRS.
  - Mission and MPD agreed on updated form to be used in the survey.
  - Results will determine feasibility of full-fledged survey and/or alternative estimation methods of FDI.
- Recommended Actions (Nonfinancial FDI):
  - Define the enterprises to be included in the direct investment pilot survey—approximately 10 to 15 enterprises. Selected enterprises should be of industries: communications, hotels, postal services, agriculture, mining, and construction.
  - Conduct the direct investment pilot survey.
  - Base on the pilot results of the FDI survey, evaluate the way forward for running a full-fledged survey in Kabul.

### Direct Investment for the Banking Sector (ODC)
- Current state and data sources:
  - MPD compiled FDI of the banking sector—fourth quarter, 2018—using a survey form.
  - MPD to request access to audited statements at the Financial Supervision Department (FSD), following internal confidentiality rules.
  - Direct investment transactions and positions sourced from bank financial statements at FSD should be consistent with those from the MFS, specifically liabilities side—Shares and other equity liabilities in the 2SR (code 512FODLQF_FX_XDC).
  - Data to be collected from (a) income statements, (b) statements of changes in equity, and (c) equity composition of the banks (to identify the share of foreign ownership).
- Recommended Actions (Banking FDI):
  - Request access to audited financial statements of the ODC, following the DAB’s internal confidentiality rules.
  - Compile FDI data of the ODC for 2015–2107, sourced by the audited financial statements.
  - Compile FDI data of the ODC for 2018 Q1, Q2, Q3, and onwards, sourced by the updated direct investment survey for banks.5

### Personal Transfers and Grants — coverage, estimation, and priorities
- Coverage issues:
  - Personal transfers (remittances) coverage limited; ITRS only covers remittances through banking sector and MSPs attached to banks.
  - Remittances through autonomous MSPs and informal channels (such as hawala) are not captured; these informal channels appear to be a large remittance channel.
  - MTOs in Afghanistan do not have a centralized system from where remittance data can be obtained.
- Surveys and prospects:
  - Survey to autonomous MSPs had good traction but collected data not significant for ESS compilation.
  - Short/medium run: not significant improvements expected in recording remittances of autonomous MSOs and informal channels.
- Priority and methods:
  - Highest priority: estimation of unrecorded personal transfers using indirect data sources.6
  - Estimation of unrecorded remittances should be a permanent activity in DAB’s work plan and initiated at the earliest convenience.
  - Well-designed household survey can be important, but current household survey (conducted by CSO) does not provide useful data; adding remittances section and full implementation may take a couple of years.
  - Use of models to complement remittances estimation recommended; explore secondary data on migrant statistics (migration of Afghans by destination, migration flows over time, gender, migrants’ income by country/region, seasonality, household income sourced from migrants by region, and other relevant data).
  - Anecdotal evidence suggests remittances sent by hawalas and informal channels represent around 50 percent of the total remittances in Afghanistan.7
- Recommended Actions (Remittances and Grants):
  - Keep expanding survey coverage for capturing MTOs and licensed hawalas remittances data.
  - MPD to prepare a work plan for estimating remittances not captured by the ITRS; work plan to incorporate (i) responsible unit and (ii) periodicity.
  - MPD and other relevant DAB departments to investigate and collect available secondary data (national and international sources) to complement remittances estimation.
  - MPD to request NSIA adding a remittances section in the households survey.
  - NSIA to be incorporated into the project as a data source provider.
  - DAB to estimate on regular bases the remittances not captured by administrative data or ITRS.
  - Grants: implement current and capital transfers offsetting—such as grants in cash, technical assistance, and development projects—based on the Ministry of Finance information and following the model proposed in the 2018 TA mission.

### Unrecorded Exports — narcotics/opium inclusion
- NSIA is finalizing incorporation of illicit drugs production (opium) in GDP calculation for 2016–2018.
- MPD actions and conditions for inclusion:
  - MPD to obtain from NSIA estimated data of illegal (i) exports of narcotics and (ii) imports associated with narcotics production to incorporate into balance of payments.
  - Inclusion should occur only when estimation method is proven reliable.
  - When estimation method accepted, MPD to incorporate these data into balance of payments and, with relevant DAB departments, prepare model with offsetting entries of narcotics exports—including imports, cash in vault and others—to help reduce errors and omissions.
- Recommended Actions (Narcotics):
  - NSIA to provide to MPD estimated data of total illegal exports of narcotics and total imports not recorded in customs related to illegal production of narcotics (based on NSIA estimations included in GDP calculation for 2016–18).
  - Include in balance of payments statistics the estimated data of illegal exports and imports related to narcotic production (opium) for 2016–18 and prepare the offsetting entries of these data.

### OTHER ISSUES — A. Reserve Assets
- Current practice:
  - DAB’s reserve assets are currently recorded at face value.
  - According to BPM6, market prices should be used in ESS for valuing transactions and positions.8
  - DAB’s Accounting Department should provide to MPD reserve assets data at market prices for ESS compilation.
  - Reserves assets compiled for ESS purposes should be consistent with MFS data.9
- Transactions and valuation guidance:
  - Transactions estimated as difference in positions at end and beginning of reported period and converted to USD by applying average exchange rate; estimated transactions thus include changes due to variation in exchange rate and price.
  - According to BPM6 methodology, only “pure transactions” should be registered in the balance of payments; exchange rate and price changes should be registered in the integrated IIP under revaluation.
  - Compilers should request from reserve management unit the currency and instrument composition of reserve assets to estimate pure transactions and exchange rate/price changes.
- Predetermined short-term net-drains:
  - DAB will initiate compilation of predetermined short-term net-drains on foreign currency.
  - Mission noted reserve-related liabilities are narrowly defined in BPM6 as foreign currency liabilities of monetary authorities that can be considered direct claims by nonresidents on reserve assets.10
  - Differences between reserve-related liabilities (current positions, original maturity) and net drains (determined based on residual maturity foreign currency inflows and outflows to be received or paid within forthcoming 12 months) clarified.
- IRFCL reporting:
  - DAB is considering reporting to IMF’s Statistics Department (STA) reserve assets data on regular basis using the International Reserves and Foreign Currency Liquidity template (IRFCL).11
  - Mission encouraged MPD to set up IRFCL compilation framework.
  - Next ESS TA will review prepared source data for constructing IRFCL, including estimates of predetermined short-term net drains on foreign currency assets, to be submitted to STA.
- Recommended Actions (Reserve Assets):
  - DAB’s Accounting Department to provide reserves assets data to MPD on accrual basis or market value—depending on the financial instrument and with the needed sectoral breakdown according to the reserve format (central bank, ODC, other financial corporations).
  - Use available data on reserves to complete the asset section of the template on IRFCL.
  - Review data consistency between ESS and MFS on reserve assets.
  - Develop a draft estimation of predeterminate short-term net drains on foreign currency assets (nominal value) for categories:
    - (i) up to one, month;
    - (ii) more than one month and up to three months; and
    - (iii) more than three months and up to one year.

### OTHER ISSUES — B. Technical Assistance and Capacity Development
- Training needs and priorities:
  - Importance of participation of officials in ESS courses offered by IMF’s Headquarters (Washington, D.C.) and IMF-Singapore Training Center emphasized.
  - Officials directly involved in ESS compilation should be nominated for future training.
- Recommended Actions (Training and capacity):
  - DAB to nominate staff for training courses at IMF’s HQ, regional training centers, and other international organizations.
  - MPD to always have staff trained in different duties associated with ESS compilation to manage eventual staff turnover.
  - Organize staff visits to partner countries for exchange of experience in compiling ESS (subject to funding availability). One priority topic would be operation of the ITRS.

### Appendix I. Officials Met During the Mission
- Mission acknowledgement: mission thanks officials of the MPD for their cooperation during its stay in Amman.
- Officials met:
  - Mr. Ahmad Jawad Sadad — Deputy Director General, Monetary Policy Department
  - Mr. Mahboobullah Wafah — IIP Manager
  - Mr. Abdul Qadir Majid — Analysis and Reporting MIS Section Manager, Accounting and Finance General Directorate
  - Mr. Mohsen Nabizada — Balance of Payments Manager
  - Mr. Rokhaan Ahmad Nader — ITRS Manager

### 2.2 Loans from direct investors — definition and coding
- Transactions: disbursements and repayments of principal involving credit resources between direct investors and direct investment enterprises (except banking); subordinated debt received from direct investors; returnable financial assistance received from direct investors.
- Codes shown in the source:
  - 4261
  - 4262

### Related classifications in the balance of payments framework (selected codes)
- Portfolio Investment — 2.1.1 Equity: Codes: 4301 4302
- Portfolio Investment — 2.1.2 Debt securities: Codes: 4303 4304
- Portfolio Investment liabilities — 2.2.1 Equity: Codes: 4401 4402
- Portfolio Investment liabilities — 2.2.2 Debt securities: Codes: 4403 4404
- Other Investment — 3.1.1 Loans (assets): Codes: 4501 4502
- Other Investment — 3.1.2 Deposits, other (assets): Codes: 4503 4504
- Other Investment — 3.2.1 Loans (liabilities): Codes: 4601 4602
- Other Investment — 3.2.2 Deposits, other (liabilities): Codes: 4603 4604

### Suggested Action Plan for ITRS Enhancement — selected action outputs
1. Develop description of planned ITRS enhancement including sections (i) through (xvii) as listed in the source (legal framework; scope; objective; principles; performance; confidentiality; data coverage; reporting forms; classification; neutral codes; thresholds; reporting procedures; accounting data quality checks; aggregation; balance of payments output tables; role of IT; consultation and training).
2. Ensure sound legal and institutional background; project forms and instructions to be approved by management; define if DAB regulation would reinforce implementation.
3. Set up joint working group with commercial banks to decide issues including (i) draft report forms; (ii) consistency with banking practices; (iii) consolidation from regional branches; (iv) computerization, electronic format, transmission; (v) application of thresholds; (vi) ITRS consulting and training.
4. Ensure suitability of reporting forms for computer processing; design reference journals and automated quality control.
5. Develop program for processing, analysis and evaluation of primary ITRS data and intermediate results in the DAB.
6. Undertake wide-ranging consultations with commercial banks’ management to gain support.
7. Develop communication procedure with banks for verifying unusual transactions and correcting data.
8. Develop format for monthly summary report on quality of reported data and suggested changes.
9. Establish program of regular seminars for commercial banks to explain purpose of collecting data and ITRS reporting requirements.

*Source: Content unit from IMF PDF chapter/section (1afgea2020001).*

### 1. Priority Recommendations _____________________________________________________________________ 6

### 1. Priority Recommendations

### Mission overview and objectives
- A technical assistance (TA) mission on external sector statistics (ESS) was conducted in Amman, Jordan, during March 31–April 10, 2019, for the Da Afghanistan Bank (DAB).
- The mission objectives were to assist the DAB in improving the quality of the balance of payments and international investment position (IIP) statistics.
- The mission took stock of recent improvements and commended the DAB’s Monetary Policy Department (MPD) for achieving most of the 2018 TA recommendations.
- Mission focus areas included:
  - reviewing and suggesting improvements to the International Transactions Reporting System (ITRS);
  - examining the recording of foreign direct investment (FDI) of other depositary corporations (ODC) in the balance of payments and IIP;
  - assessing data quality and methodological treatment of personal remittances and general government transfers;
  - evaluating the possibility of estimating opium exports.

### Key findings and major shortcomings
- Afghanistan’s balance of payments and IIP have considerable gaps in the coverage of the current and financial accounts.
- Major data gaps are related to unrecorded personal remittances, military aid, and illegal exports; errors and omissions are significantly high and persistent.
- Remittances through autonomous Money Service Providers (MSPs) and informal channels are not captured; there appears to be a large remittance channel outside current administrative sources.
- The MPD has implemented an ITRS that only collects ODC data, excluding the central bank from its coverage.
- The current ITRS is labor-intensive, based on spreadsheets (not associated with any data base), with limited data validations.
- Important discrepancies were detected between ITRS output data and administrative sourced data.
- Direct investment data have major limitations in coverage and classification.
- Inclusion of the opium economy will have significant impact in the national and international accounts; NSIA is finalizing incorporation of illicit drugs production (opium) in the GDP calculation for 2016–18 and will provide estimated illegal exports and imports data associated with narcotics.

### Highest-priority recommendations (table summary)
- Target Date: January 2020 — Update the current ITRS coding and instructions for aligning to BPM6 and streamlining/customizing to Afghan-specific transactions (remittances, other services, and others). — Responsible: MPD
- Target Date: January 2020 — Conduct the direct investment pilot survey. — Responsible: MPD
- Target Date: January 2020 — In coordination with the DAB’s relevant departments, prepare a work plan for estimating on regular basis the remittances not captured by administrative data or ITRS. — Responsible: MPD

### Action plan highlights (prioritized actions and milestones)
- Outcome: Source data are adequate for compilation.
  - H: Strengthen the validation of the current ITRS. — Target Completion Date: October 2019 and onwards.
  - H: Update the current ITRS coding and instructions for aligning to BPM6 and streamlining/customizing to Afghan-specific transactions (remittances, other services, and others). — Target Completion Date: January 2020.
  - M: Draft initial technical requirements for enhancing the ITRS— including ODC and central bank; resources needed, requested indicators, validation rules, submission requirements (format, periodicity, timeliness). — Target Completion Date: December 2019.
  - H: Define enterprises for a direct investment pilot survey—approximately 10 to 15 enterprises across communications, hotels, postal services, agriculture, mining, and construction. — Target Completion Date: October 2019.
  - H: Conduct the direct investment pilot survey. — Target Completion Date: January 2020.
  - H: Base on the pilot results, evaluate way forward for a full-fledged survey in Kabul. — Target Completion Date: March 2020.
  - H: Compile direct investment data of the banking sector for 2015–17, sourced by audited financial statements (reconciliation of equity). — Target Completion Date: November 2019.
  - H: Compile FDI data of the ODC for 2018 Q1, Q2, Q3 and onwards, sourced by the updated FDI survey for ODC. — Target Completion Date: November 2019 and onwards.
  - H: Keep expanding remittances survey coverage for capturing MTOs and licensed hawalas remittances data. — Target Completion Date: On a regular basis.
  - H: MPD, with relevant DAB departments and senior management support, to prepare a work plan for estimating remittances not captured by the ITRS; work plan to specify responsible unit and periodicity. — Target Completion Date: January 2020.
  - H: MPD and other relevant DAB departments to collect available secondary data (national and international) to complement remittances estimation. — Target Completion Date: November 2019.
  - H: Request NSIA to add a remittances section in the households survey. — Target Completion Date: February 2020 and onwards.
  - H: NSIA to be incorporated into the remittances project as a data source provider. — Target Completion Date: March 2020.
  - H: DAB to estimate on a regular basis the remittances not captured by administrative data or ITRS. — Target Completion Date: September 2020 and onwards.
  - H: Implement current and capital transfers offsetting (grants in cash, technical assistance, development projects) based on Ministry of Finance information and following the model proposed in the 2018 TA mission. — Target Completion Date: March 2020.
  - H: NSIA to provide to MPD estimated data of total illegal exports of narcotics and total of imports not recorded in customs related to illegal production of narcotics. — Target Completion Date: December 2019.
  - H: Include in the balance of payments the estimated data of illegal exports and imports related to narcotic production (opium) for 2016–18 and prepare corresponding estimated offsetting entries. — Target Completion Date: January 2020.

- Outcome: Data compiled and disseminated using appropriate statistical techniques.
  - H: DAB’s Accounting Department to provide reserves assets data to MPD on accrual basis or market value—depending on the financial instrument—with needed sectoral breakdown according to the reserve format (central bank, ODC, other financial corporations). — Target Completion Date: November 2019 and onwards.
  - H: Use available data on reserves to complete the asset section of the template on IRFCL. — Target Completion Date: November 2019.
  - H: Review data consistency between ESS and MFS on reserve assets. — Target Completion Date: November 2019.
  - H: Develop a draft estimation of predeterminate short-term net drains on foreign currency assets (nominal value) for categories: (i) up to one, month, (ii) more than one month and up to three months, and (iii) more than three months and up to one year. — Target Completion Date: March 2020.

- Outcome: Staff capacity increased through training.
  - M: DAB’s management to nominate staff for training courses at the IMF HQ, regional training centers, and other international organizations. — Target Completion: Ongoing.
  - M: MPD to maintain staff trained in different duties associated with ESS compilation; to manage staff turnover. — Target Completion: Permanent.
  - H: Organize staff visits to partner countries for exchange of experience in compiling ESS (subject to funding availability), with priority topic the operation of the ITRS. — Target Completion: Once a year.

- Outcome: Data access to the public improved.
  - H: Direction of Trade (DOT) data should be permanently reconciled with balance of payments statistics prepared by the MPD. — Target Completion: Ongoing basis.

### Strengthening the data collection system — ITRS assessment and revamping
- Current ITRS characteristics and limitations:
  - Provides data sourced from commercial banks and used for compiling many balance of payments and IIP components.
  - Focus needed on strengthening ITRS data validation procedures and reinforcing internal procedures (including requirement of supporting documents from banks for statistical outliers).
  - Current ITRS collects only ODC data and excludes the central bank.
  - Current ITRS is reported on quarterly basis, labor-intensive, based on spreadsheets (not a database), with minor validations at bank level.
  - Current ITRS may be a source of significant under coverage and misclassifications for balance of payments compilation.

- Objectives and design principles for an enhanced ITRS:
  - The ITRS should serve as the main source of information for balance of payments compilation.
  - Enhancements should include revised design with expanded coverage—including the central bank—and significant changes in data processing from data entry to validation.
  - Fundamental design principles:
    - use of standardized coding system—aligned to Afghanistan needs;
    - data derived from core banking and linked to bank’s operational day;
    - data collected and monitored centrally;
    - system to be IT-backed and flexible to accommodate respondents’ requirements;
    - applied IT and hardware compatible with a variety of IT platforms in the banks.

- Prerequisites for ITRS enhancement:
  - strong top level managerial support in the DAB and well prioritized planning;
  - strong cooperation with reporting banks, including banks’ involvement in design and implementation;
  - sufficient IT and staff resources in DAB and banks;
  - adequate level of IT development;
  - quality of report forms and collection procedures;
  - training of respondents.

- ITRS reporting procedure recommendations:
  - Report form to be submitted on direct correspondent accounts with nonresident banks and on current accounts of nonresident clients; filled separately for each correspondent account.
  - Report form to include: name of the bank, account number, reporting period, currency of the account, transacting domestic entity (bank, nonfinancial corporation, other financial institution, individual, government), code of transaction, country of transactions, and value of transaction (credit or debit).
  - Preferable to convert system into a closed system where banks report all movements on each correspondent account together with beginning and end of period positions to enable verification, harmonization with positions and transactions, and validation with MFS.
  - Not all movements on correspondent accounts give rise to a balance of payments transaction — a special code is to be assigned for aggregated data on non-balance of payments (neutral transactions); Appendix IV provides practical examples of neutral transactions.
  - Banks are to provide monthly aggregated data in a single electronic form accompanied with detailed instructions. Appendix V contains suggested codes for capital and financial account transactions.
- Implementation requires DAB senior management support, trained staff able to check individual bank reports, and adequate IT resources.

*Source: 1. Priority Recommendations, Islamic Republic of Afghanistan — IMF mission report excerpt.*

### 19.      The Action Plan should have the following main components: (i) modifications in the

### 1afgea2020001 - 19.      The Action Plan should have the following main components: (i) modifications in the 

### ITRS Action Plan: main components and general milestone
- Main components of the Action Plan:
  - (i) modifications in the ITRS design;
  - (ii) development of the report forms with the explanatory notes;
  - (iii) report forms’ field testing;
  - (iv) development of the IT for all ITRS constituencies;
  - (v) ITRS pilot testing for banks;
  - (vi) ITRS implementation for banks;
  - (vii) development of the ITRS initial data verification and validation procedures;
  - (viii) elaboration of the ITRS intermediate data verification and validation procedures; and
  - (ix) the ITRS consulting and training.
- The suggested general action plan for ITRS enhancement is given in Appendix VI.
- Major milestone: development of relevant software and network reporting protocols for the banks.
- Enhanced ITRS IT segments required:
  - (i) initial data input, verification, and transmission to MPD;
  - (ii) source data processing and validation;
  - (iii) source data aggregation, conversion in one unit of account, validation of intermediate results for the reporting period; and
  - (iv) intermediate data processing, time-series analysis, incorporation into the main balance of payments compilation.
- ITRS IT support should be of a long-term nature to ensure sustainability.

### Joint DAB–banks ITRS working group: expected outcomes
- Expected outcomes:
  - (i) update the ITRS report form—according to the sixth edition of the Balance of Payments and International Investment Position Manual (BPM6) and customizing to Afghanistan’s specific needs—and draft explanatory note;
  - (ii) ensure the consistency between the balance of payments reporting requirements and banking accounting practices;
  - (iii) electronic data transmission and validation;
  - (iv) effective list of the transactions codes; and
  - (v) modalities of the ITRS consulting and training.

### Data verification and validation procedures
- Need to develop data verification procedures to be performed:
  - (i) when data are received from banks and entered into the MPD database;
  - (ii) after worksheets are prepared; and
  - (iii) when the aggregated ITRS data are prepared.
- Data validation procedure for initial banks data should include on-site banks inspections.
- Recommended Actions (ITRS):
  - Strengthen the validation of the current ITRS.
  - Update the current ITRS coding and instructions for aligning to BPM6 and for streamlining/customizing to Afghan-specific transactions (remittances, other services, and others).
  - Draft the initial technical requirements for enhancing the ITRS—including ODC and central bank, which should comprise resources needed, requested indicators, validation rules, submission requirements (format, periodicity, timeliness, and others).

### B. Direct Investment for Nonfinancial Corporations — issues and pilot survey
- Current compilation approach:
  - Direct investment compiled using initial commitment (approvals) of the investors to invest in licensed projects.
  - Full commitment amount currently registered under direct investment—equity in the balance of payments for the period when the commitment was made.
- Major limitations of current approach:
  - I. coverage—often not all of the committed amount is invested, or investment could exceed the committed one;
  - II. timing—the committed amount is invested over the agreed investment period that, in most cases, could be a number of years; committed amount should be registered when realized. If de facto investment by period is unknown, the committed amount should be equally split into the number of years/quarters of the implementation period;
  - III. classification—the committed investment could be financed through three types of funds:
    - (a) funds invested as equity capital;
    - (b) loans from the parent company or from other affiliated entities; and
    - (c) debt liabilities (loans, debt securities) to nonaffiliated creditors.
    - These components should be classified in balance of payments respectively as equity, debt instruments, and debt securities (portfolio investment)/loans (other investment).
- Security environment constraint:
  - Security environment affects ability to run a full-fledged direct investment survey for nonfinancial corporations.
  - Previous TA recommended enterprise survey shared between MPD and NSIA; budget and security constraints affected implementation.
- Pilot survey recommendation:
  - Apply a pilot survey to the top 10–15 FDI enterprises in Kabul to evaluate rate of response and reliability.
  - MPD staff to conduct this one-time pilot survey; list of companies to be defined jointly by the Central Business Registry and Intellectual Property Department, the NSIA, and the current ITRS.
  - Mission and MPD agreed on updated form to be used in the survey.
  - Results will determine feasibility of full-fledged survey and/or alternative estimation methods of FDI.
- Recommended Actions (Nonfinancial FDI):
  - Define the enterprises to be included in the direct investment pilot survey—approximately 10 to 15 enterprises. Selected enterprises should be of industries: communications, hotels, postal services, agriculture, mining, and construction.
  - Conduct the direct investment pilot survey.
  - Base on the pilot results of the FDI survey, evaluate the way forward for running a full-fledged survey in Kabul.

### C. Direct Investment for the Banking Sector (ODC)
- Current state:
  - MPD compiled FDI of the banking sector—fourth quarter, 2018—using a survey form.
  - For optimization, MPD responsibility for direct investment data for ODC using information in DAB’s Financial Supervision Department (FSD).
  - MPD to request access to audited statements at the FSD, following internal confidentiality rules.
  - Direct investment transactions and positions sourced from bank financial statements at FSD should be consistent with those from the MFS, specifically liabilities side—Shares and other equity liabilities in the 2SR (code 512FODLQF_FX_XDC).
- Training and data sources:
  - Mission trained MPD staff on compiling financial data from audited financial statements and use of an excel template for estimating FDI.4
  - Data to be collected sourced from (a) income statements, (b) statements of changes in equity, and (c) equity composition of the banks (to identify the share of foreign ownership).
  - Table 2 and Table 3 provided hypothetical compiled data (do not correspond to Afghanistan’s banking sector).
- Recommended Actions (Banking FDI):
  - Request access to audited financial statements of the ODC, following the DAB’s internal confidentiality rules.
  - Compile FDI data of the ODC for 2015–2107, sourced by the audited financial statements.
  - Compile FDI data of the ODC for 2018 Q1, Q2, Q3, and onwards, sourced by the updated direct investment survey for banks.5

### D. Personal Transfers and Grants — coverage, estimation, and priorities
- Coverage issues:
  - Personal transfers (remittances) coverage limited; ITRS only covers remittances through banking sector and MSPs attached to banks.
  - Remittances through autonomous MSPs and informal channels (such as hawala) are not captured; these informal channels appear to be a large remittance channel.
  - MTOs in Afghanistan do not have a centralized system from where remittance data can be obtained.
- Surveys and data prospects:
  - Survey to autonomous MSPs had good traction but collected data not significant for ESS compilation.
  - Short/medium run: not significant improvements expected in recording remittances of autonomous MSOs and informal channels.
- Priority and methods:
  - Highest priority: estimation of unrecorded personal transfers using indirect data sources.6
  - Estimation of unrecorded remittances should be a permanent activity in DAB’s work plan and initiated at the earliest convenience.
  - Well-designed household survey can be important, but current household survey (conducted by CSO) does not provide useful data; adding remittances section and full implementation may take a couple of years.
  - Use of models to complement remittances estimation recommended; explore secondary data on migrant statistics (migration of Afghans by destination, migration flows over time, gender, migrants’ income by country/region, seasonality, household income sourced from migrants by region, and other relevant data).
  - Mission shared academic papers and international migration data sources.
  - Anecdotal evidence suggests remittances sent by hawalas and informal channels represent around 50 percent of the total remittances in Afghanistan.7
- Recommended Actions (Remittances and Grants):
  - Keep expanding survey coverage for capturing MTOs and licensed hawalas remittances data.
  - The MPD in coordination with relevant DAB department(s)—and with support of DAB’s senior management—to prepare a work plan for estimating remittances not captured by the ITRS. The work plan to incorporate (i) responsible unit of the project and (ii) periodicity of the remittances estimations.
  - The MPD and other relevant DAB department(s) to investigate and collect available secondary data (national and international sources) that can be used to complement the remittances estimation.
  - The MPD to request the NSIA adding a remittances section in the households survey for obtaining relevant data.
  - The NSIA to be incorporated into the project as a data source provider.
  - The DAB to estimate on regular bases the remittances not captured by administrative data or ITRS.
  - Grants: implement current and capital transfers offsetting—such as grants in cash, technical assistance, and development projects—based on the Ministry of Finance information and following the model proposed in the 2018 TA mission.

### E. Unrecorded Exports — narcotics/opium inclusion
- Opium economy inclusion:
  - Inclusion of the opium economy will have significant impact in national and external accounts.
  - NSIA, with support of international organizations, is finalizing incorporation of illicit drugs production (opium) in GDP calculation for 2016–2018.
- MPD actions and conditions for inclusion:
  - MPD will obtain from NSIA estimated data of illegal (i) exports of narcotics and (ii) imports associated with narcotics production to incorporate into balance of payments.
  - Inclusion should occur only when estimation method is proven reliable.
  - MPD staff are participating in project as needed; interagency coordination adequate.
  - When estimation method accepted, MPD should incorporate these data into balance of payments and, with relevant DAB departments, prepare model with offsetting entries of narcotics exports—including imports, cash in vault and others—to help reduce errors and omissions.
- Recommended Actions (Narcotics):
  - Based on NSIA estimations included in GDP calculation for 2016–18, NSIA to provide to MPD estimated data of total illegal exports of narcotics and total imports not recorded in customs related to illegal production of narcotics.
  - Include in balance of payments statistics the estimated data of illegal exports and imports related to narcotic production (opium) for 2016–18 and prepare the offsetting entries of these data.

### OTHER ISSUES — A. Reserve Assets
- Current practice:
  - DAB’s reserve assets are currently recorded at face value.
  - According to BPM6, market prices should be used in ESS for valuing transactions and positions.8
  - DAB’s Accounting Department should provide to MPD reserve assets data at market prices for ESS compilation.
  - Reserves assets compiled for ESS purposes should be consistent with MFS data.9
- Transactions and valuation guidance:
  - Transactions estimated as difference in positions at end and beginning of reported period and converted to USD by applying average exchange rate; estimated transactions thus include changes due to variation in exchange rate and price.
  - According to BPM6 methodology, only “pure transactions” should be registered in the balance of payments; exchange rate and price changes should be registered in the integrated IIP under revaluation.
  - Compilers should request from reserve management unit the currency and instrument composition of reserve assets to estimate pure transactions and exchange rate/price changes.
- Predetermined short-term net-drains:
  - DAB will initiate compilation of predetermined short-term net-drains on foreign currency.
  - Mission noted reserve-related liabilities are narrowly defined in BPM6 as foreign currency liabilities of monetary authorities that can be considered direct claims by nonresidents on reserve assets.10
  - Differences between reserve-related liabilities (current positions, original maturity) and net drains (determined based on residual maturity foreign currency inflows and outflows to be received or paid within forthcoming 12 months) clarified.
- IRFCL reporting:
  - DAB is considering reporting to IMF’s Statistics Department (STA) reserve assets data on regular basis using the International Reserves and Foreign Currency Liquidity template (IRFCL).11
  - Mission encouraged MPD to set up IRFCL compilation framework.
  - Next ESS TA will review prepared source data for constructing IRFCL, including estimates of predetermined short-term net drains on foreign currency assets, to be submitted to STA.
- Recommended Actions (Reserve Assets):
  - DAB’s Accounting Department to provide reserves assets data to MPD on accrual basis or market value—depending on the financial instrument and with the needed sectoral breakdown according to the reserve format (central bank, ODC, other financial corporations).
  - Use available data on reserves to complete the asset section of the template on IRFCL.
  - Review data consistency between ESS and MFS on reserve assets.
  - Develop a draft estimation of predeterminate short-term net drains on foreign currency assets (nominal value) for categories:
    - (i) up to one, month;
    - (ii) more than one month and up to three months; and
    - (iii) more than three months and up to one year.

### OTHER ISSUES — B. Technical Assistance and Capacity Development
- Training needs and priorities:
  - Importance of participation of officials in ESS courses offered by IMF’s Headquarters (Washington, D.C.) and IMF-Singapore Training Center emphasized.
  - It is of utmost importance that officials directly involved in ESS compilation be nominated for future training.
- Recommended Actions (Training and capacity):
  - The DAB to nominate staff for training courses at IMF’s HQ, regional training centers, and other international organizations.
  - The MPD to always have staff trained in different duties associated with ESS compilation to manage eventual staff turnover and not jeopardize needed improvements.
  - Organize staff visits to partner countries for exchange of experience in compiling ESS (subject to funding availability). One priority topic would be operation of the ITRS.

_Italic source: Content unit from IMF PDF chapter/section (1afgea2020001) provided in source content._

### Appendix I. Officials Met During the Mission

### Appendix I. Officials Met During the Mission

### Mission acknowledgement
- The mission thanks the officials of the MPD for their cooperation during its stay in Amman. Their assistance contributed significantly to the achievement of the mission’s objectives.

### Officials met
- Mr. Ahmad Jawad Sadad — Deputy Director General, Monetary Policy Department
- Mr. Mahboobullah Wafah — IIP Manager
- Mr. Abdul Qadir Majid — Analysis and Reporting MIS Section Manager, Accounting and Finance General Directorate
- Mr. Mohsen Nabizada — Balance of Payments Manager
- Mr. Rokhaan Ahmad Nader — ITRS Manager

*International Monetary Fund — Appendix I. Officials Met During the Mission*

### 2.2 Loans from direct

### 2.2 Loans from direct investors

### Definition and transaction coding
- Transactions (disbursements and repayments of principal) involving credit resources that occur between direct investors and direct investment enterprises (except banking); subordinated debt received from direct investors; returnable financial assistance received from direct investors.
- Codes shown in the source:
  - 4261
  - 4262

### Related classifications in the balance of payments framework
- Portfolio Investment (section header for context)
  - 2.1 Portfolio Investment assets
    - Credit—sale of foreign security
    - Debit—purchase of foreign security
  - 2.1.1 Equity
    - Codes: 4301 4302
    - Description: Purchase/sale of foreign shares, participation certificates, equity securities, all types of investments in trusts and investment funds
  - 2.1.2 Debt securities
    - Codes: 4303 4304
    - Description: Purchase/sale of foreign bonds, notes, and money-market instruments
  - 2.2 Portfolio Investment liabilities
    - Credit—sale of domestic security to nonresident
    - Debit—repurchase of domestic security from nonresident
  - 2.2.1 Equity
    - Codes: 4401 4402
    - Description: Sale/repurchase of domestic shares, participation certificates, equity securities, all types of investments in trusts and investment funds
  - 2.2.2 Debt securities
    - Codes: 4403 4404
    - Description: Sale/repurchase of domestic bonds, notes, and money-market instruments
- Other Investment
  - 3.1 Other Investment Assets
    - 3.1.1 Loans
      - Codes: 4501 4502
      - Description: Loans extended to nonresidents (disbursements/repayments)
    - 3.1.2 Deposits, other
      - Codes: 4503 4504
      - Description: Deposits abroad
  - 3.2 Other Investment Liabilities
    - 3.2.1 Loans
      - Codes: 4601 4602
      - Description: Loans received from abroad (disbursements/repayments)
    - 3.2.2 Deposits, other
      - Codes: 4603 4604
      - Description: Deposits of non-bank nonresidents in the bank of Afghanistan

### Suggested Action Plan for ITRS Enhancement in Afghanistan — Action outputs (selected from source)
1. Based on the principles outlined by the mission, develop description of the planned ITRS enhancement.
   - The description should include the following sections:
     - (i) legal framework,
     - (ii) the scope of enhanced ITRS,
     - (iii) the objective of ITRS,
     - (iv) principles of the ITRS,
     - (v) the performance of the ITRS,
     - (vi) the confidentiality of information about individual respondents,
     - (vii) data coverage,
     - (viii) reporting forms,
     - (ix) the classification of transactions,
     - (x) description of using neutral codes for reporting (if decision for closed ITRS is made),
     - (xi) methods of administration of the ITRS thresholds,
     - (xii) reporting procedures,
     - (xiii) accounting data quality checks,
     - (xiv) the aggregation of results,
     - (xv) the balance of payments output tables,
     - (xvi) role of IT,
     - (xvii) consultation and training.
2. Ensure sound legal and institutional background for ITRS enhancement.
   - The project forms and instructions, as well as modalities of ITRS enhancement work should be approved by the management.
   - Define if the DAB regulation on ITRS implementation would reinforce the implementation.
3. Set up a joint working group with commercial banks to collaborate with the commercial banks for the preparation of the implementation of the enhanced ITRS.
   - The joint working group need to consider the consistency of reporting requirements for balance of payments, accounting practices in banks and operational day of the bank, consolidating data from the regional offices of the banks, methods of transmission and automated control of data.
   - The following list of the issues is to be decided at the working group:
     - (i) to discuss the draft report forms;
     - (ii) the consistency between the balance of payments reporting requirements and banking accounting practices;
     - (iii) consolidation of data from the banks’ regional branches;
     - (iv) computerization of completing the reporting forms, electronic format, data transmission;
     - (v) application of thresholds;
     - (vi) the ITRS consulting and training.
4. Ensure the suitability of reporting forms for computer processing.
   - Design reference journals and automated quality control of the primary accounting information at an early stage of development.
5. Develop a program for processing, analysis and evaluation of primary ITRS data and intermediate results in the DAB.
6. Undertake wide-ranging consultations with the management of commercial banks to gain their support.
7. Develop communication procedure with the banks for verifying, e.g., unusual transactions and correcting data.
8. Develop a format for monthly summary report on the quality of the reported data and suggested changes in the reporting forms, instructions, methods of testing and transfer of data dictated by the results of quality control.
9. Establish a program of regular seminars for commercial banks to explain the purpose of collecting data and understanding the ITRS reporting requirements.

*Source: ISLAMIC REPUBLIC OF AFGHANISTAN — 1afgea2020001 - 2.2 Loans from direct (INTERNATIONAL MONETARY FUND)*

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_Source: https://www.imf.org/-/media/files/publications/cr/2020/english/1afgea2020001.pdf_