## _cr05237 ## Source details **Canonical URL:** [_cr05237](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2005/_cr05237.pdf) ## Other formats - [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2005/_cr05237.pdf.md) - [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2005/_cr05237.pdf.json) --- ### Executive Summary — Progress under the SMP - Afghanistan continued to make progress in improving macroeconomic management, strengthening capacity to formulate policy, and creating conditions for sustainable economic growth. - All indicative quantitative indicators and structural benchmarks for the fourth review were observed, except for the external debt survey, due to the lack of cooperation of some creditors. - A further extension of the SMP, probably through end-March 2006, is being considered to prepare the national development strategy that will form the basis for the Interim Poverty Reduction Strategy Paper (I-PRSP). - Risks: approaching legislative elections, a poor security environment, low administrative capacity, red tape, and the drug economy. ### Real activity and prices - Real GDP growth: estimated at 7.5 percent in 2004/05. - Staff projection for 2005/06 real GDP growth: 13.6 percent (reflecting an expected rebound in agricultural output due to better precipitation). - Medium-term growth potential: around 10 percent. - Inflation (Kabul, year-on-year): 16.3 percent in 2004/05 (SMP projection was 13 percent). - CPI excluding rents, education fees, and petroleum: 10.3 percent year-on-year in 2004/05. - National CPI (five major cities plus Kabul): increased by 10.9 percent year-on-year at end-2004/05. - Projected year-on-year inflation: decline to 10 percent by end-2005/06 (reflecting a tightening of the monetary stance and anticipated slowdown in food prices and rents). ### Fiscal performance, revenues, and reforms - Provisional fiscal revenue in 2004/05: Af 12,800 million (SMP indicative target: Af 12,784 million; budget forecast: Af 15,380 million). - Shortfall due in part to delays in collecting about Af 800 million / Af 797 million in overflight charges. - Operating budget recorded a surplus of Af 1.1 billion for 2004/05 (shortfall in revenue more than offset by lower-than-expected operating expenditures). - Development spending remained substantially below budget expectations due to lack of security and low capacity of line ministries and implementing agencies. - Operating budget provided for a 15 percent increase in spending over the MYR projections for 2004/05, and for a 23 percent increase compared with the 2004/05 actual outturn. - Major fiscal reforms published in the Official Gazette (March 2005): - Amendments to the revenue laws enacting an income tax reform package (including wage withholding tax, a fixed tax on selected services, a reduction in the corporate tax rate to 20 percent, and a rent tax). - New customs code enabling implementation of the revised tariff structure introduced in 2004. - Publication of estimated revenue forgone due to past investment-related tax exemptions: about $14.6 million in 2005/06 (equivalent to 4.4 percent of budgeted revenue) and over $30.2 million since 2003/04, and a time-bound plan to address all exemptions and concessions. - All tax concessions not included in the income tax law ceased to have any effect on June 21, 2004. ### Monetary and exchange rate developments - Currency in circulation at year-end 2004/05: Af 39.6 billion (SMP indicative target: Af 39.8 billion). - Da Afghanistan Bank (DAB) foreign exchange reserves: $1.3 billion at end-2004/05 (slight decline during the fourth quarter). - Interest rate on the overnight capital note: 1–2 percent. - One-month auctions: continued to be undersubscribed; one-month note increased to 5 percent at end-March. - Nominal exchange rate: Af 48.65 per U.S. dollar at year-end 2004/05 (reported as Af 48.7 per U.S. dollar at end-year elsewhere in the report). - Afghani appreciation in 2004/05: 3.4 percent in nominal terms and 15.1 percent in real terms. - DAB actions: stepped up foreign currency auctions during the fourth quarter; started enforcing reserve requirements (set at 8 percent); restructured its balance sheet; published the commercial banking law; gained ownership of the silver and gold held in the palace vaults; ceased headquarters-based commercial activities; completed audit of end-2003/04 financial accounts; adopted new banking regulations. ### External sector and debt - Current account deficit excluding grants in 2004/05: 43.7 percent of GDP (down from 50.9 percent in 2003/04). - Current account including grants in 2004/05: broadly balanced, compared with a 3.1 percent of GDP surplus in 2003/04. - External financing: foreign direct investment and concessional borrowing increased; deficit continued to be mainly financed by grants; external borrowing remained limited and on highly concessional terms. - External debt survey: not completed for the fourth review owing to lack of cooperation of some creditors. ### Structural reforms and banking sector - Structural advances: publication of revenue law amendments and new customs code; publication of commercial banking law; DAB gained ownership of palace gold and silver; DAB ceased headquarters-based commercial activities; audit completed; reserve requirements enforcement started. - Private banking sector: developing steadily; private commercial banks’ lending (essentially in U.S. dollars) increased significantly. - State-owned banks: limited progress in restructuring; no decision yet on resolution process of three former state-owned banks that were not relicensed. ### Anti-narcotics and agriculture - Authorities began implementing their anti-narcotics strategy. - Reported decline in poppy cultivation in early 2005 partly attributable to decline in farm gate prices triggered by the 2004 bumper harvest and anti-narcotics campaign. - Uncertainty: decline in planted areas does not guarantee a decline in opium production because yields are expected to rise significantly with improved rainfall. - Authorities committed to await the midyear budget review before any easing of the fiscal stance despite pressures for higher salaries and agricultural support. ### Policy priorities and financing needs - Short-term priorities: (a) diversify sources of growth; (b) implement policies to maintain donor inflows and preserve external competitiveness; (c) strengthen administrative capacity. - Medium-term requirements: strengthen structural reform agenda to encourage private investment; prioritize spending in favor of poverty reduction and investment; increase domestic revenue; accelerate implementation of revenue reforms. - Financing needs: continued predictable and sizeable assistance from the donor community in the form of grant financing and concessional lending will be required given low domestic savings and limited scope for external borrowing. --- ### Domestic revenues and revenue targets (Section 14) - Authorities revised the indicative SMP revenue target for 2005/06 to the equivalent of 5.2 percent of GDP, reflecting prospective receipts of two overflight payments and a higher baseline. - This compares with the 2004/05 outturn of 4.5 percent of GDP. - The revised 2005/06 target is above the budget projection; the 2004/05 SMP target was below the revenue level projected in the 2004/05 budget. - Footnote: The administrative weaknesses responsible for delays in collecting the overflight charges are expected to be addressed in 2005/06. Revenue reform priorities and measures - Authorities regard increasing revenue as their top priority and requested Fund technical assistance to review and reprioritize reform programs on customs, tax administration, and tax policy. - Expected customs reform revenue drivers (conditional on implementation): - (a) planned improvements in infrastructure; - (b) introduction of the Automated System for Customs Data; - (c) enactment of regulations to support the new customs code; - (d) establishment of the new customs police. - Tax administration priorities: - (a) large taxpayer office; - (b) restructuring the revenue headquarters and provincial tax offices; - (c) introducing enforcement powers and additional corporate tax reform measures in the income tax law (a new end-September 2005 benchmark); - (d) removing the plethora of illicit or nuisance taxes. - Other measures: - Resist pressures for lower taxes; note of recently-enacted accelerated depreciation and loss-carry forward. - Strengthen monitoring of aid-related exemptions and validity of reported end-use of exempt goods. ### Fiscal stance, wages, and spending pressures - Authorities committed to wait until the midyear review before any easing of the fiscal stance. - Pressures since the beginning of the year to: adjust salaries; shift resources to large infrastructure projects; consider policies to help stabilize farmers’ incomes. - Staff suggestions and timeline: - Address salary adjustment at the time of the MYR and consistent with the World Bank-supported public administration reform (PAR) program expected to be completed before end-2005. - Minister of Finance indicated a salary adjustment appeared unavoidable at some point this year. - On agricultural support: authorities concurred that addressing bottlenecks (transportation and stocking facilities) is preferable to agricultural price supports. --- ### Development budget, donor funding, and spending projections (Sections 14 & 34) - An ‘interim’ development budget will be amended by a supplementary budget in June and at the time of the MYR, scheduled for October. - Core development and external budget spending projections: - Core development spending: projected to increase from 4.5 percent of GDP in 2004/05 to 13.2 percent of GDP in 2005/06. - External budget spending: projected to increase from 35.4 percent of GDP in 2004/05 to 44.5 percent of GDP in 2005/06. - Staff projection for core budget development spending in 2005/06: 5.4 percent of GDP (substantially lower-than-budgeted 13.2 percent of GDP). - The development budget amendment (entirely donor-funded) will incorporate additional anticipated commitments, including for the new Counter Narcotics Trust Fund. - Footnote: The relatively large unclassified development spending will be allocated to specific projects within existing National Priority Programs, some likely for opium eradication, either at the supplementary budget or during the MYR. --- ### Budget presentation, MTFF, and public financial management (Sections 17 & 14) - Current presentation combines cash and commitment concepts and significantly overstates the actual amount of spending within the year. - Commitments: - Move toward a more standard and consistent cash-based presentation of the budget within a MTFF. - Publish more timely quarterly core budget reports. - Base projections on available financing and real absorption capacity over the medium term. - Midyear review rule: any additional domestic revenue above the budget forecast prior to the MYR will be used to either: (i) offset shortfalls in budgeted grant resources; or (ii) build prudential cash reserves. - Public financial management reforms and timelines: - Publish the public financial management law in the Official Gazette by end-June (authorities committed). - Put in place, by end-September 2005, a system linking the Ministry of Finance with DAB to facilitate reconciliation of main government bank accounts with expenditure data. - Submit the audited 2004/05 financial statements to parliament by end-September 2005. --- ### Monetary policy, reserves, and banking sector modernization (Sections 17 & 43) - Monetary program for 2005/06: provides for a substantial tightening of the monetary stance while allowing further monetization of the economy; exchange rate to remain flexible. - DAB will maintain a flexible exchange rate and not resist persistent pressures when resistance may conflict with reducing inflation; DAB may intervene to smooth short-term fluctuations consistent with its primary objective. - Reserve floor adjustments: - End-June 2005 floor for gross international reserves revised downward to allow possible further tightening when the government draws down deposits with DAB. - End-September 2005 floor kept unchanged and is consistent with coverage of four months of prospective imports at end-2005/06. - Footnote: End-2004/05 reserve coverage revised downward from 5.2 months to 3.9 months compared with third review estimates. - DAB commitments and actions: - Publish audited 2003/04 financial accounts by end-June. - Transfer DAB’s commercial activities in specified branches by end-September. - Obtain preliminary estimate of palace gold and silver to determine DAB capitalization; remedial action if undercapitalized. - Broaden monetary instruments based on Fund TA findings. - Improve timeliness and reliability of monetary reporting; work with commercial banks to address administrative impediments. - State-owned banks: - Intensify efforts to restructure state-owned banks. - Minister of Finance to prepare a long-term strategic plan for restructuring three licensed state-owned banks by end-September 2005. - Decide on resolution of three former state-owned banks not relicensed and start implementing by end-June. --- ### External sector outlook and debt management - 2005/06 external position expected similar to 2004/05, with a current account deficit excluding grants of about 44.8 percent of GDP. - Over the medium term, the current account deficit excluding grants is expected to decline somewhat due to revival of exports, decline in imports related to donor-financed activities, and substitution of some imports with domestically-produced goods. - Current account including grants would deteriorate before recovering in the long term. - Borrowing and debt policy: - New external project financing to be consistent with cautious external debt management and based on comprehensive assessment of investment projects. - Continue to seek grant financing and highly concessional borrowing; external borrowing expected to remain relatively modest over the medium term. - Continue efforts to reconcile existing external liabilities and complete external debt survey (new structural benchmark: complete by end-September 2005). - Government intends to contact the Paris Club Secretariat to ensure no obligations outstanding vis-à-vis Paris Club creditors; staff offered facilitation with non-Paris Club creditors if necessary. Key balance of payments and reserves statistics (selected exact figures) - Gross foreign exchange reserves (end-2004/05): $1,261.3 million (reported elsewhere as $1.3 billion). - Official foreign exchange reserves (memorandum): 426.1; 815.9; 1,261; 1,620; 1,936; 1,687 (millions of U.S. dollars) for 2001/02–2006/07 as shown. - Reserve coverage (months of prospective imports): 1.8; 3.1; 3.9; 4.6; 5.5; 5.1. - Current account deficit excluding grants (percent of GDP): -33.4; -50.9; -43.7; -44.8; -41.2; -31.5 (2001/02–2006/07 as shown). --- ### Structural reforms, private sector environment, and I-PRSP - Commitments to establish environment conducive to private sector investment: modern and simplified tax system; appropriate legal framework for business activity; simplified procedures to create and operate enterprises. - A new investment law expected to be published in the Official Gazette by end-September 2005. - Authorities working on an overall economic restructuring plan and classification of state-owned enterprises by envisaged restructuring method, expected to be adopted by Cabinet by end-September 2005. - Authorities intend to prepare an I-PRSP by end-October 2005, based on their NDS, and to establish an inter-ministerial committee, working group of predominantly Afghan experts, and an external advisory group. ### Statistics, surveys, and technical assistance - Data provision and quality remain weak despite recent progress; statistical master plan adopted September 2004. - Adoption by end-September 2005 of a statistical law providing legal framework for data collection, processing, and publication. - Launch in June–July 2005 of key surveys: national risk vulnerability assessment survey (rural households); integrated living standard survey; integrated business enterprise survey (about 1000 medium and large enterprises). - Technical assistance remains crucial; authorities conducting a full review of TA in collaboration with donors to redeploy resources and play a more active role in managing TA. - IMF TA and training provided, including missions across FAD, MFD, LEG, STA, MCD, and participation in METAC. --- ### Program conditionality, monitoring, and staff appraisal - Conditionality includes quantitative indicators and structural benchmarks through end-September 2005; three new end-September 2005 structural benchmarks added: completion of external debt survey; publication in Official Gazette of additional amendments to the income tax law to provide enforcement powers; implementation of recently approved tax measures. - Fifth and sixth SMP reviews tentatively scheduled for August and November 2005 to assess performance through end-June 2005 and end-September 2005. - Staff appraisal: recent performance encouraging (strong GDP growth, manageable inflation, increased reserves, fiscal and monetary policies consistent with program), but significant risks remain (wage/infrastructure/borrowing pressures, drug economy, insecurity, procedural hurdles). - Staff recommendations: - Vigorous implementation of multi-pronged anti-narcotics strategy and offer assistance to capture macroeconomic effects. - Medium-term PAR program should form basis for sustainable fiscal position; World Bank-supported pay and grading review to be pursued more vigorously. - Contain pressures for generalized or sector-specific pay increases; authorities’ intention to postpone decisions on salary and infrastructure increases until the MYR is welcomed. *Source: _cr05237* ### Executive Summary ...................................................................................................... ### Executive Summary ### Progress under the Staff-Monitored Program (SMP) - Afghanistan continued to make progress in improving macroeconomic management, strengthening capacity to formulate policy, and creating conditions for sustainable economic growth. - All indicative quantitative indicators and structural benchmarks for the fourth review were observed, except for the external debt survey, due to the lack of cooperation of some creditors. - A further extension of the SMP, probably through end-March 2006, is being considered by the authorities to prepare the national development strategy that will form the basis for the Interim Poverty Reduction Strategy Paper (I-PRSP). - Risks to reform and program implementation include the approaching legislative elections, a poor security environment, low administrative capacity, red tape, and the drug economy. ### Real activity and prices - Real GDP growth: estimated at 7.5 percent in 2004/05. - Staff projection for 2005/06 real GDP growth: 13.6 percent (reflecting an expected rebound in agricultural output due to better precipitation). - Medium-term growth potential: around 10 percent. - Inflation (Kabul, year-on-year): 16.3 percent in 2004/05 (SMP projection was 13 percent). - CPI excluding rents, education fees, and petroleum: 10.3 percent year-on-year in 2004/05. - National CPI (five major cities plus Kabul): increased by 10.9 percent year-on-year at end-2004/05. - Projected year-on-year inflation: decline to 10 percent by end-2005/06 (reflecting a tightening of the monetary stance and anticipated slowdown in food prices and rents). ### Fiscal performance and reforms - Provisional fiscal revenue in 2004/05: Af 12,800 million (SMP indicative target: Af 12,784 million; budget forecast: Af 15,380 million). - Shortfall in revenue relative to the budget was partly due to delays in collecting about Af 800 million in overflight charges. - Operating budget recorded a surplus of Af 1.1 billion for 2004/05 (shortfall in revenue more than offset by lower-than-expected operating expenditures). - Development spending remained substantially below budget expectations due to lack of security and low capacity of line ministries and implementing agencies. - Fiscal policy stance: authorities committed to wait until the midyear budget review before considering any easing of the fiscal stance; they will use the 2005/06 operating budget as a base to develop a medium-term fiscal framework (MTFF). - Operating budget provided for a 15 percent increase in spending over the MYR projections for 2004/05, and for a 23 percent increase compared with the 2004/05 actual outturn. - Major fiscal reforms enacted and published in the Official Gazette (March 2005): - Amendments to the revenue laws enacting an income tax reform package (including wage withholding tax, a fixed tax on selected services, a reduction in the corporate tax rate to 20 percent, and a rent tax). - New customs code enabling implementation of the revised tariff structure introduced in 2004. - Publication of estimated revenue forgone due to past investment-related tax exemptions: about $14.6 million in 2005/06 (equivalent to 4.4 percent of budgeted revenue) and over $30.2 million since 2003/04, and a time-bound plan to address all exemptions and concessions. - All tax concessions not included in the income tax law ceased to have any effect on June 21, 2004. ### Monetary and exchange rate developments - Currency in circulation at year-end 2004/05: Af 39.6 billion (SMP indicative target: Af 39.8 billion). - Da Afghanistan Bank (DAB) foreign exchange reserves: $1.3 billion at end-2004/05 (slight decline during the fourth quarter). - Interest rate on the overnight capital note: 1–2 percent. - One-month auctions: continued to be undersubscribed. - Nominal exchange rate: Af 48.65 per U.S. dollar at year-end 2004/05. - Afghani appreciation in 2004/05: 3.4 percent in nominal terms and 15.1 percent in real terms. - Monetary program for 2005/06: provides for a substantial tightening of the monetary stance while allowing a further monetization of the economy; exchange rate to remain flexible. - DAB actions: stepped up foreign currency auctions during the fourth quarter to partly offset monetary expansion and maintain money in circulation in line with the SMP indicative ceiling; started enforcing reserve requirements; restructured its balance sheet and strengthened the banking regulatory framework; published the commercial banking law in the Official Gazette; gained ownership of the silver and gold held in the palace vaults; ceased headquarters-based commercial activities; completed audit of end-2003/04 financial accounts; adopted a set of new banking regulations. ### External sector and debt - Current account deficit excluding grants in 2004/05: 43.7 percent of GDP (down from 50.9 percent in 2003/04). - Current account including grants in 2004/05: broadly balanced, compared with a 3.1 percent of GDP surplus in 2003/04. - External financing: foreign direct investment and concessional borrowing increased; deficit continued to be mainly financed by grants; external borrowing remained limited and on highly concessional terms. - External debt survey: not completed for the fourth review owing to lack of cooperation of some creditors. ### Structural reforms and banking sector - Structural advances: - Publication of amendments to revenue laws and new customs code (Official Gazette, March 2005). - Publication of commercial banking law in the Official Gazette. - DAB gained ownership of silver and gold held in the palace vaults. - DAB ceased headquarters-based commercial activities, completed audit of end-2003/04 financial accounts, and adopted new banking regulations. - DAB started enforcing reserve requirements. - Private banking sector: developing steadily; private commercial banks’ lending (essentially in U.S. dollars) increased significantly; some banks considering provincial expansion to finance alternative livelihoods programs. - State-owned banks: little progress in restructuring the state-owned banks; licensed state-owned banks developed more modern internal procedures but made limited progress in hiring qualified staff and divesting real estate investments as required under relicensing conditionality; no decision yet on resolution process of three former state-owned banks that were not relicensed. ### Anti-narcotics and agriculture - Authorities began implementing their anti-narcotics strategy. - Reported decline in poppy cultivation in early 2005: partly attributable to decline in farm gate prices triggered by the 2004 bumper harvest and anti-narcotics campaign. - Uncertainty: decline in planted areas does not guarantee a decline in opium production because yields are expected to rise significantly with improved rainfall. - Government pressures: demands for higher salaries, infrastructure spending, and support to agriculture; authorities committed to await the midyear budget review before any easing of fiscal stance. ### Policy priorities and requirements - Short-term priorities: (a) diversify sources of growth; (b) implement policies to maintain donor inflows and preserve external competitiveness; (c) strengthen administrative capacity. - Medium-term requirements: strengthen structural reform agenda to encourage private investment; prioritize spending in favor of poverty reduction and investment; increase domestic revenue; accelerate implementation of revenue reforms to raise revenue mobilization. - Financing needs: given low domestic savings and limited scope for external borrowing, continued predictable and sizeable assistance from the donor community in the form of grant financing and concessional lending will be required. *Source: _cr05237 - Executive Summary* ### 14. Domestic revenues for 2005/06 are expected to be higher than budgeted. With the ### _cr05237 - 14. Domestic revenues for 2005/06 are expected to be higher than budgeted. With the ### Domestic revenues and revenue targets - Prospective receipts of two overflight payments and a higher baseline led authorities to revise the indicative SMP revenue target for 2005/06 to the equivalent of 5.2 percent of GDP. - This compares with the 2004/05 outturn of 4.5 percent of GDP. - The revised 2005/06 target is above the budget projection; the 2004/05 SMP target was below the revenue level projected in the 2004/05 budget. - Footnote: The administrative weaknesses responsible for delays in collecting the overflight charges are expected to be addressed in 2005/06. ### Revenue reform priorities and measures - Authorities regard increasing revenue as their top priority and requested Fund technical assistance to review and reprioritize reform programs on customs, tax administration, and tax policy. - Expected customs reform revenue drivers (conditional on implementation): - (a) planned improvements in infrastructure; - (b) introduction of the Automated System for Customs Data; - (c) enactment of regulations to support the new customs code; - (d) establishment of the new customs police. - Tax administration priorities: - (a) large taxpayer office; - (b) restructuring the revenue headquarters and provincial tax offices; - (c) introducing enforcement powers and additional corporate tax reform measures in the income tax law (a new end-September 2005 benchmark); - (d) removing the plethora of illicit or nuisance taxes. - Other measures: - Resist pressures for lower taxes; note of recently-enacted accelerated depreciation and loss-carry forward. - Strengthen monitoring of aid-related exemptions and validity of reported end-use of exempt goods. ### Fiscal stance, wages, and spending pressures - Authorities view any easing of the fiscal stance should wait until the MYR. - Since the beginning of the year, there have been strong pressures to: - adjust salaries; - shift more resources to large infrastructure projects; - consider policies to help stabilize farmers’ incomes (partly as alternative livelihoods to poppy farmers). - Staff suggestions and timeline: - Address salary adjustment at the time of the MYR and consistent with the World Bank-supported public administration reform (PAR) program expected to be completed before end-2005. - Minister of Finance indicated a salary adjustment appeared unavoidable at some point this year given relatively low wages and no wage increase in the 2005/06 budget. - On agricultural support: authorities concurred that addressing bottlenecks (transportation and stocking facilities) is preferable to agricultural price supports. ### Development budget, donor funding, and spending projections - An ‘interim’ development budget will be amended by a supplementary budget in June and at the time of the MYR, scheduled for October. - Core development and external budget spending projections: - Core development spending: projected to increase from 4.5 percent of GDP in 2004/05 to 13.2 percent of GDP in 2005/06. - External budget spending: projected to increase from 35.4 percent of GDP in 2004/05 to 44.5 percent of GDP in 2005/06. - The development budget amendment (entirely donor-funded) will incorporate additional anticipated commitments, including for the new Counter Narcotics Trust Fund. - Footnote: The relatively large unclassified development spending will be allocated to specific projects within existing National Priority Programs, some likely for opium eradication, either at the supplementary budget or during the MYR. ### Budget presentation, MTFF, and transparency - Authorities committed to move toward a more standard and consistent cash-based presentation of the budget within a MTFF, and to publish more timely quarterly core budget reports. - They acknowledged the need to develop a realistic MTFF and improve budget consistency to create more realistic expectations. - Authorities intend to base projections on available financing and real absorption capacity over the medium term, though projecting available financing is difficult because few donors can provide multiyear commitments and some larger donors limit to one-year commitments. - Footnote: The current presentation of the core budget, which combines cash and commitment concepts, significantly overstates the actual amount of spending within the year and creates undue expectations. ### Fiscal reforms and public financial management - To strengthen medium-term fiscal viability, the program envisages an acceleration of fiscal reforms. - Legal and systems actions and timelines: - Publish the public financial management law in the Official Gazette and develop accompanying financial regulations; authorities committed to have the law published by end-June. - Put in place, by end-September 2005, a system linking the Ministry of Finance with DAB to facilitate reconciliation of main government bank accounts with expenditure data. - Submit the audited 2004/05 financial statements to parliament by end-September 2005. - Note: Delays in implementing measures partly due to insufficient translation capacity at the Ministry of Justice. ### Monetary and exchange rate policy - Monetary policy guided by the monetary program from the third review, providing for a substantial tightening of the monetary stance while allowing further monetization of the economy. - Authorities will maintain a flexible exchange rate and not resist persistent pressures on the exchange rate when resistance may conflict with DAB’s primary objective of reducing inflation. - Authorities will allow nominal exchange rate appreciation to avoid real appreciation being realized only through higher prices. - DAB may intervene to smooth short-term exchange rate fluctuations when consistent with its primary objective. - Monetary program remains flexible and will be reviewed at the time of the next mission. - Reserve floor adjustments: - To allow for a possible further tightening when the government draws down deposits with DAB, the end-June 2005 floor for gross international reserves was revised downward. - The end-September 2005 floor was kept unchanged and is consistent with a coverage of four months of prospective imports at end-2005/06. - Footnote: The end-2004/05 reserve coverage of prospective imports has been revised downward compared with the third review estimates, from 5.2 months to 3.9 months. ### Banking sector modernization and restructuring - By end-June, DAB will publish its audited 2003/04 financial accounts. - Authorities are obtaining a preliminary estimate of gold and silver in palace vaults to determine DAB capitalization; remedial action would be taken if undercapitalized. - By end-September, DAB’s commercial activities in city branches in Kabul and in branches located in provinces where at least one commercial bank operates will be transferred to other entities. - DAB will work toward broadening the set of monetary instruments based on findings of the May 2005 Fund technical assistance mission. - Authorities will address administrative impediments to banking sector development (absence of bankruptcy and corporate laws, high fees such as property registration) and work with commercial banks to improve timeliness and reliability of monetary reporting. - State-owned banks: - Authorities to intensify efforts to restructure state-owned banks. - Minister of Finance committed to prepare, by end-September 2005, a long-term strategic plan for restructuring three licensed state-owned banks. - Agricultural Development Bank (one of three former state-owned banks not relicensed) should not be revived; rural financing needs to be met by other means. - Relicensing of former banks would be conditional on strict compliance with licensing requirements. - Authorities committed to decide on resolution of the three former state-owned banks not relicensed and start implementing by end-June. ### External sector and debt management - 2005/06 external position expected similar to 2004/05, with a current account deficit, excluding grants, of about 44.8 percent of GDP. - Over the medium term, the current account deficit excluding grants is expected to decline somewhat due to: - revival of exports; - decline in imports related to donor-financed activities; - substitution of some imports with domestically-produced goods. - The current account including grants would deteriorate before recovering in the long term. - Authorities will be vigilant to balance of payments pressures and take a moderate growth stance; pursue macroeconomic and structural reforms to improve external competitiveness. - Donor- and drug-related inflows have contributed to significant real appreciation of the Afghani; authorities intend donor-related inflows to be spent efficiently to improve productivity. - Borrowing and debt policy: - Authorities underscored need for new external project financing to be consistent with cautious external debt management and based on comprehensive assessment of investment projects. - Continue to seek grant financing and highly concessional borrowing; external borrowing expected to remain relatively modest over the medium term. - Continue efforts to reconcile existing external liabilities and complete external debt survey. - Government intends to contact the Paris Club Secretariat to ensure no obligations outstanding vis-à-vis Paris Club creditors; staff offered facilitation with non-Paris Club creditors if necessary. ### Structural reforms and private sector environment - Commitments to establish environment conducive to private sector investment: - Modern and simplified tax system; - Appropriate legal framework for business activity; - Simplified procedures to create and operate enterprises. - A new investment law expected to be published in the Official Gazette by end-September 2005. - Authorities working on an overall economic restructuring plan and classification of state-owned enterprises by envisaged restructuring method, expected to be adopted by Cabinet by end-September 2005. ### Poverty reduction, I-PRSP, and data/statistics - Authorities intend to prepare an I-PRSP by end-October 2005, based on their NDS. - Need to establish institutional framework to coordinate NDS/I-PRSP process: inter-ministerial committee, working group of predominantly Afghan experts, and external advisory group drawing on UN agencies, international financial institutions, key donors, and civil society. - Data and statistics: - Data provision and quality remain weak despite recent progress. - Measures under way to implement the statistical master plan adopted in September 2004, including restructuring the Central Statistical Office (CSO). - Adoption by end-September 2005 of a statistical law providing the legal framework for data collection, processing, and publication. - Launching in June–July 2005 of key surveys (paragraph 31 of MEFP) that will feed into poverty reduction work. ### Technical assistance and capacity building - TA will remain crucial to build capacity and carry out the reform agenda. - Authorities noted some weaknesses in TA delivery: allocation among government agencies, coordination within government and between government and donors, and overlapping among providers. - A full review of TA is being conducted in collaboration with donors to provide basis for redeployment; authorities intend to play a more active role in managing TA. - Authorities appreciated Fund support, including training delivered in Kabul in April 2005 by the Middle East and Central Asia and Monetary and Financial Systems Departments. - Staff reiterated willingness to continue providing further TA. ### Program conditionality, monitoring, and SMP reviews - Conditionality includes quantitative indicators and structural benchmarks through end-September 2005 set out in Tables 1 and 2 of the MEFP. - Three new end-September 2005 structural benchmarks added: - preparation of the external debt survey; - publication in the Official Gazette of additional amendments to the income tax law that provide enforcement powers; - implementation of recently approved tax measures. - The fifth and sixth reviews under the SMP, tentatively scheduled for August and November 2005, will assess quantitative performance and structural conditionality through end-June 2005 and end-September 2005, respectively. - A technical memorandum of understanding (TMU) provides program design details and terminology, and the government will continue to make available to Fund staff all data as specified in the TMU. - Authorities indicated interest in Fund monitoring beyond the current SMP timeframe, possibly through an additional six-month extension; to be discussed at the fifth review. ### Staff appraisal: outlook, risks, and policy recommendations - Recent performance: - GDP growth strong despite bad weather and volatile security; - Inflation remained under control; - Gross international reserves increased further; - Fiscal and monetary policies conformed to program objectives. - Emerging pressures and risks: - Intensifying pressures for higher wages, infrastructure spending, and external borrowing ahead of legislative elections. - Growing share of the drug economy, lingering insecurity, and cumbersome procedures hindering private investment pose major risks. - Security: recent deterioration related to anti-narcotics campaign, political maneuvering before September legislative elections, rising criminality, resurgence of Taliban activity; no hard evidence security will worsen further, especially after elections given donor support. - Staff assessments and recommendations: - Short- and medium-term objectives set by authorities are attainable. - Encourage vigorous implementation of multi-pronged anti-narcotics strategy; reported decline in poppy cultivation partly due to 2004 bumper harvest and lower farm gate prices, which could reverse. - Offer assistance to capture macroeconomic effects of a successful anti-narcotics strategy and design corrective policies. - Emphasize that a medium-term PAR program should form the basis for sustainable fiscal position; World Bank-supported pay and grading review needs to be pursued more vigorously. - Reiterate need to contain pressures for generalized or sector-specific pay increases, some driven by donors, as these might undermine comprehensive reform efforts. - Welcome authorities’ intention to postpone decisions on salary and infrastructure increases until the MYR and their commitment not to introduce agricultural price supports. *Source: IMF staff report content provided in the supplied PDF extract.* ### 34. Staff welcomed the projected rise in core development and external budget ### _cr05237 - 34. Staff welcomed the projected rise in core development and external budget ### Development and external budget spending - Staff welcomed the projected rise in core development and external budget spending in 2005/06. - Sustaining higher development spending in the future requires improvements in: - implementation capacity, and - security, which are likely to be gradual. - Short of such improvements, attempts to increase the share of development spending implemented by the government, rather than by the international community, could further slow spending. - Staff welcomed the authorities’ reiterated commitment to publishing the financial management law in the Official Gazette by end-June, noting that any further delay would raise questions about the authorities’ commitment to reform. - Key statistic: - Staff projection for core budget development spending in 2005/06 is at 5.4 percent of GDP, substantially lower-than-budgeted (13.2 percent of GDP). ### Revenue mobilization, tax, and customs reform - Only an intensive and sustained effort to improve revenue collection will lead to a viable fiscal position. - Authorities need to reprioritize tax and customs reforms. - Recommended focus: - medium-term administrative reforms rather than quick fixes, and - elimination of nuisance taxes. - Staff welcomed the authorities’ renewed commitment to reform programs and their request for Fund TA to help review and prioritize customs and administration reform programs and tax policy. - On tax policy: - Staff considered the new tax regime is not burdensome. - Lower tax rates would jeopardize fiscal sustainability while doing little to encourage investment. - Staff encouraged maintaining a regular dialogue with the business community despite resistance to pressures for lower taxes. ### Medium-term financing and budget realism - Even with strong revenue mobilization and expenditure restraint, significant external assistance will be required over the medium term. - Staff encouraged the government to develop a realistic MTFF with “stretch targets” for: - accelerated revenue mobilization, - maintenance of expenditure discipline, and - improved realism of the budget. - A realistic MTFF will help manage growing expectations and provide a sound basis for donors to provide predictable resources, consistent with priorities in the NDS. ### Monetary policy, banking sector, and financial markets - Authorities need to broaden the set of monetary instruments and indicators and strengthen the banking sector. - Staff encouraged development of a work program aligned with Fund TA mission recommendations on monetary policy and financial markets to improve effectiveness of existing instruments and introduce new ones. - Staff welcomed authorities’ intention to address rigidities impeding development of the commercial banking sector and encouraged the DAB to introduce bankruptcy and corporate laws to facilitate financial market development. - Staff welcomed DAB’s commitment to improve monetary reporting. - Concerns: - Slow pace of restructuring licensed state-owned banks. - Absence of progress in resolving banks that were not relicensed—attributed to limited ministry capacity and a lack of political will. - Staff urged: - the Ministry of Finance, in its role as shareholder, to take a more active role in addressing these issues, and - DAB to strictly enforce conditionality attached to relicensing of licensed state-owned banks. ### External debt management - A comprehensive survey of external debt is necessary to design an external debt management strategy. - Staff is confident the authorities, through renewed efforts, will be able to finalize this survey by end-September 2005. - Seeking assistance from the Paris Club Secretariat will contribute to a comprehensive account of all outstanding debt obligations; bilateral contacts should help determine remaining obligations vis-à-vis non-Paris Club creditors. ### Regulatory environment and private sector development - Accelerating the overhaul of the regulatory environment is critical for sustaining and enhancing private sector development. - Reforms underway are commendable; authorities should continue decisive measures in: - taxes, - business laws, and - transparency. - Authorities are prioritizing reduction of government involvement in market mechanisms and economic activities. ### Legislative capacity and law passage - Serious concerns exist regarding the timely passage of economic legislation. - Reconstruction is generating a significant flow of new legislation and stretching the limited capacity of the Ministry of Justice. - Until a new parliament is elected, staff urged the government to: - establish clear priorities in the legislative agenda, - monitor carefully the law generation process, and - actively seek additional resources from the donor community to bolster the Ministry of Justice’s capacity. ### Statistics, data, and institutional framework - Authorities should press ahead with pending reforms in the statistical area to: - establish an adequate legal and institutional framework, and - produce data of international standards. - Closer coordination among government agencies and with the international donor community is necessary to implement methodological improvements in the statistical master plan. - Staff considered there is no alternative to an independent CSO and urged the government to take all necessary steps in that direction. ### Macroeconomic monitoring and coordination - The institutional mechanism to monitor macroeconomic developments and report core data and information on SMP implementation is in place and working well, but there is room for improvement. - The technical coordination committee (TCC) needs to: - develop an analytical role in the macroeconomic area, and - reach out to other government agencies. - Strengthening TCC’s role will help strengthen ownership of reforms and improve domestic capacity. *Source: _cr05237 - 34. Staff welcomed the projected rise in core development and external budget* ### 43. The economic program for 2005/06 represents a strong and credible effort to address ### 43. The economic program for 2005/06 represents a strong and credible effort to address ### Program assessment and IMF decision - Staff supported the authorities’ request to complete the fourth review under the SMP. - The economic program for 2005/06 is described as a "strong and credible effort to address the vulnerabilities facing Afghanistan." ### Price developments (Figure 1) - Consumer Price Index (Year-on-year change; in percent) shown for Dec-03, Mar-04, Jun-04, Sep-04, Dec-04, Mar-05 with series for: - Overall index - Rents - Other items - Petroleum products - Rents Index (100 = March) series shown for Mar–Mar covering 2003/04 and 2004/05. ### Monetary developments (Figure 2) - Currency in Circulation (Year-to-date change; in percent) series shown for Mar-05 through Mar-06 with series for: - 2003/04 actual - 2004/05 actual - 2005/06 projection - 2005/06 SMP indicative ceiling - 2005/06 level triggering consultation - Capital Note Auctions (interest rate; in percent) shown Sep-04 through Mar-05 with series for Overnight and 30-day notes (rates shown as integers from 0 to 5). ### Foreign exchange reserves and real exchange rate (Figure 3) - DAB's foreign exchange reserves and Government foreign currency deposits (In millions of U.S. dollars) shown for Mar-04, Jun-04, Sep-04, Dec-04, Mar-05 with series: - DAB's foreign exchange reserves - Government foreign currency deposits - Price and Exchange Rate Indices (March 2004 = 100) series shown Dec-02 through Mar-05 with indices for: - CPI (Kabul) - Nominal exchange rate - Real exchange rate - Note: "An increase in the exchange rate indices corresponds to an appreciation. The real exchange rate is estimated using the U.S. and Afghan CPIs." ### Key economic and social indicators (Table 1: 2001/02–2005/06) - GDP (in millions of U.S. dollars, excluding opium production): - 2001/02: 2,463 - 2002/03: 4,084 - 2003/04: 4,585 - 2004/05: 5,941 - 2005/06: 7,095 - GDP (in millions of Afghanis): - 2001/02: 133,987 - 2002/03: 182,862 - 2003/04: 225,108 - 2004/05: 283,089 - 2005/06: 353,627 - Real GDP growth rate (in percent): 28.6, 15.7, 7.5, 13.6 (by year listed) - GDP per capita (in U.S. dollars): 123, 182, 199, 252, 292 - Opium production (in metric tons): 2003, 3,400, 3,600, 4,200 (table entries as shown) - Opium value (in millions of U.S. dollars): 2,540, 2,300, 2,800 (as shown) - CPI (Kabul, year-on-year change; in percent): -43.4, 52.3, 10.2, 16.3, 10.0 - CPI (Kabul, average change; in percent): 5.2, 24.2, 14.3, 12.0 (years as shown) - General government recurrent budget (Revenues in millions): ...132, 207, 269, 368 (as shown) - Expenditures (millions): ...349, 451, 561, 660 - Donor grants and loans (millions): ...209, 205, 314, 354 - Revenues (in percent of non-opium GDP): 3.2, 4.5, 4.5, 5.2 - Operating expenditures (in percent of non-opium GDP): 8.5, 9.8, 9.4, 9.3 - Monetary indicators: - Domestic currency in circulation (annual change; in percent): ...20.1, 40.9, 37.5, 27.8 - Gross foreign exchange reserves: ...426.1, 815.9, 1,261.3, 1,619.5 - External sector: - Exports of goods (including reexports): 708.9, 1,290.6, 1,893.9, 1,750.0, 1,916.7 - Exports of goods (annual change; in percent): ...82.1, 46.7, -7.6, 9.5 - Imports of goods: 1,645.0, 2,508.2, 3,785.9, 3,863.9, 4,534.6 - Imports of goods (annual change; in percent): ...52.5, 50.9, 2.1, 17.4 - Current account deficit (excluding grants): -1,363.7, -2,334.7, -2,596.5, -3,178.6 - Current account deficit (including grants; in percent of GDP): ...-3.5, 3.1, 0.0, -0.5 - Afghani/U.S. dollar (average): 54.4, 44.8, 49.0, 47.7 ... - Afghani/U.S. dollar (end-year): 31.0, 52.6, 50.3, 48.7 ... - Investment and savings: - Gross investment: ...28.3, 35.2, 39.0, 39.3 - Domestic savings: ...-5.1, -15.7, -4.7, -5.5 - Area: 652,000 square kilometers - Population (2002/03): 21.8 million - Life expectancy at birth (2001): 42.8 years - Infant mortality per 1,000 live births (2003): 115 - Under-five mortality per 1,000 live births (2003): 172 - Note: "The fiscal year 2005/06 runs from March 21, 2005 until March 20, 2006." ### Savings-Investment balances and GDP composition (Table 2; 2002/03–2007/08) - Domestic expenditures (millions): 5,447, 6,919, 8,538, 10,274, 11,674, 12,642 (2002/03–2007/08 as shown) - Consumption (millions): 4,293, 5,305, 6,219, 7,485, 8,584, 9,846 - Public consumption (millions): 318, 429, 571, 623, 669, 764 - Private consumption (millions): 3,975, 4,875, 5,648, 6,863, 7,916, 9,082 - Gross fixed capital formation (millions): 1,154, 1,615, 2,319, 2,788, 3,089, 2,796 - Public (millions): 1,104, 1,557, 2,082, 2,226, 2,404, 1,985 - Net exports of goods and services (millions): -1,364, -2,335, -2,596, -3,179, -3,409, -3,027 - Domestic savings (millions): -210, -720, -278, -390, -319, -231 - GDP at market prices (millions): 4,084, 4,585, 5,941, 7,095, 8,265, 9,615 - Sectoral shares of GDP (in percent): Agriculture 49.8, 48.5, 37.4, 36.2, 35.4, 34.6; Industry 20.1, 21.3, 24.1, 24.4, 25.1, 25.1; Services 30.1, 30.2, 38.5, 39.4, 39.6, 40.3 - Real GDP growth (annual change; in percent): 28.6, 15.7, 7.5, 13.6, 10.9, 10.8 - Nominal GDP growth (annual change; in percent): 33.8, 23.1, 25.8, 24.9, 16.5, 16.3 - GDP per capita (in U.S. dollars): 182, 199, 252, 292, 330, 373 - Domestic government revenue (in percent of GDP): 3.2, 4.5, 4.5, 5.2, 5.0, 5.4 ### Core budget and donor financing (Tables 3a/3b; Core Budget 2002/03–2006/07) - Domestic revenue (millions of Afghanis): 5,864; 10,168; 15,380 (with quarterly breakdowns for 2004/05 leading to annual projections) - Donor Assistance Grants (to operating budget) (millions): 9,430; 10,074; 14,952; with breakdown including ARTF, LOTFA and Army Trust Fund - Total core budget expenditure (millions): 15,514; 31,606; 67,214 - Operating expenditure (millions): 15,514; 22,151; 30,332 - Wages and salaries (millions): 14,660; 20,813 - Purchase of goods and services (millions): 4,653; 4,862 - Core budget development spending (millions): ---; 9,455; 36,882 - National programs and National Priority Programs line items with detailed allocations by sector - Operating budget balance (excluding grants) (millions): -9,650; -11,983; 14,952; and quarterly values for 2004/05 - Operating budget balance (including grants) (millions): -219; -1,910; 0; and quarterly values - Core budget balance (millions): -219; -6,795; 0; and quarterly values - Financing (millions): 876; 5,102; 0; and composition into External Loans (net) and Domestic (net) - Memorandum: External budget expenditure figures and staff notes: - "Staff projected domestic revenue of Af 12.784 billion for 2004/05." - Various methodological footnotes on float/adjustment, transfers from government deposits, and one-off 2002/03 financing items. ### Monetary program (Da Afghanistan Bank) (Table 4: 2003/04–2005/06) - Net foreign assets (levels in Afghanis) and components for Mar/Jun/Sep/Dec/Mar columns with: - Foreign assets and foreign liabilities breakdown - Foreign exchange reserves (in millions of U.S. dollars): 815.9, 950.2, 1,093.3, 1,285.1, 1,246.3, 1,261.3, 1,261.3, ... , 1,619.5 (end-of-period levels) - Gold valuation note: "The gold is valued at $400 per ounce in 2004/05–2005/06 and does not include the gold held in the palace vaults." - Net domestic assets and reserve money components: - Reserve money levels: 31,124; 31,759; 36,015; 38,953; 41,555; 41,911; 41,063; 41,701; 46,595; 49,598; 52,771 - Currency in circulation (banknotes and coins issued less cash holdings) with specific series and a memorandum line: - Currency in circulation (SMP indicative ceiling; in millions of Afghanis): ... 39,755 ... 41,216 43,820 ... - Currency in circulation (level triggering discussions; in millions of Afghanis): ... 41,532 ... 42,271 46,061 ... - Currency in circulation (year-to-date change): 40.9, 4.8, 21.7, 28.9, 38.0, 37.5, ... , 1.0, 13.0, 20.2, 27.8 - Currency in circulation (year-on-year change) entries including 40.9, 38.0, 37.5, 32.6, 27.7, 28.3, 27.8 - Consumer prices in Kabul: - Quarterly change examples: -0.6, 6.8, 1.3, 4.0, ... 3.2, 3.2 - Annual change examples: 10.2, 15.5, 14.1, 11.9, 13.0, 16.3, 16.3, ... 10.0 - Program exchange rate used for conversions: Af 49.84 per U.S. dollar in 2004/05–2005/06. - Note: "In 2003/04–2004/05, cash holdings only include cash in DAB's treasury vaults and in DAB's six major provincial branches. In 2005/06, they include cash in DAB's Treasury vaults and in all DAB's provincial branches." ### Balance of payments (Table 5: 2002/03–2007/08) - Trade balance (millions of U.S. dollars): -1,217.6; -1,892.0; -2,113.8; -2,617.9; -2,925.3; -2,673.7 - Exports of goods (total): 1,290.6; 1,893.9; 1,750.0; 1,916.7; 1,917.7; 1,697.8 - Domestic exports (millions): 276.8; 376.8; 457.2; 571.0; 664.7; 773.0 - Reexports series examples: 1,013.9; 1,517.1; 1,292.8; 1,345.6; 1,253.0; 924.7 - Imports of goods: 2,508.2; 3,785.9; 3,863.9; 4,534.6; 4,843.0; 4,371.4 - Recorded imports: 1,142.3; 1,688.5; 1,993.1; 2,481.3; 2,850.6; 2,800.4 - Duty free: 840.0; 1,000.0; 1,203.3; 1,326.3; 1,335.6; 1,075.1 - Commodity food aid examples: 94.0; 40.9; 107.8; 0.0; 0.0; 0.0 - Services: net -145.1; -439.3; -486.8; -573.9; -502.4; -375.9 - Receipts: 50.8; 105.5; 77.5; 105.5; 131.9; 147.6 - Payments: 195.9; 544.8; 564.3; 679.4; 634.3; 523.5 - Income (net): -1.1; -3.4; 4.1; 13.2; 19.1; 23.0 - Interest receipts: 0.0; 4.9; 13.8; 25.3; 32.8; 38.3 - Interest payments (debt service mnemonic): 1.1; 8.3; 9.7; 12.1; 13.7; 15.3 - Current transfers: 1,221.7; 2,476.7; 2,593.8; 3,144.9; 3,310.1; 2,337.2 - Public transfers: 1,170.1; 2,421.7; 2,518.7; 3,048.3; 3,233.5; 2,275.6 - Current account (including grants): -142.0; 142.0; -2.7; -33.7; -98.5; -689.4 - Current account (excluding grants): -1,363.7; -2,334.7; -2,596.5; -3,178.6; -3,408.6; -3,026.6 - Capital and financial account: 144.0; 147.7; 345.6; 381.2; 404.2; 429.7 - Foreign direct investment: 50.0; 57.8; 186.9; 212.4; 235.4; 260.9 - Public loans (net): 94.0; 89.9; 158.7; 168.8; 168.8; 168.8 (Disbursement 100.2; 96.1; 164.9; 175.0; 175.0; 175.0; Amortization paid 6.2 each year) - Net errors and omissions: -153.3; -89.3; -145.7; 0.0; 0.0; 0.0 - Overall balance and financing entries with changes in DAB foreign exchange/reserve assets and exceptional financing (arrears estimates). - Memorandum: - Official foreign exchange reserves (in millions of U.S. dollars): 426.1; 815.9; 1,261; 1,620; 1,936; 1,687 - In months of prospective imports: 1.8; 3.1; 3.9; 4.6; 5.5; 5.1 - Current account balance (in percent of GDP) including grants: -3.5; 3.1; 0.0; -0.5; -1.2; -7.2 - Excluding grants: -33.4; -50.9; -43.7; -44.8; -41.2; -31.5 - GDP (millions of U.S. dollars): 4,084; 4,585; 5,941; 7,095; 8,265; 9,615 ### Relations with the Fund, exchange regime, and technical assistance (Appendix I) - Membership: Joined July 14, 1955; Article XIV. - Quota (SDR million): Quota 161.90 (100.00 percent); Fund holdings of currency 161.92 (100.01 percent); Reserve position in Fund 0.00 (0.00 percent). - SDR Department: Net cumulative allocation 26.70 (100.00 percent); Holdings 0.02 (0.07). - Outstanding Purchases and Loans: None. - Financial Arrangements: None. - Projected Obligations to Fund (SDR million; 2005–2009): - Principal: 0.00 for 2005–2009 - Charges/Interest: 0.33 (2005), 0.67 (2006), 0.67 (2007), 0.67 (2008), 0.67 (2009) - Total: 0.33 (2005), 0.67 (2006), 0.67 (2007), 0.67 (2008), 0.67 (2009) - HIPC Initiative: Not Applicable. - Exchange arrangement: - Afghanistan is an Article XIV member country implementing a liberal exchange system; "no exchange restrictions and multiple currency practices are currently in place" based on staff information. - Authorities intend to formalize the liberal regime via new laws and regulations and have asked for technical assistance from the Fund. - A joint LEG/MFD mission is envisaged in the coming weeks. - "At least since end-2001, the Afghani has been floating, and more recently the authorities have been implementing a managed float with no predetermined path for the exchange rate." - As of June 30, 2005, the average exchange rate on the Kabul money exchange market was Af 50.15 per $1. - Monetary policy operations: - Authorities rely on foreign exchange auctions since May 2002 and on short-term capital note auctions since September 2004. - Foreign exchange auctions are weekly and open to licensed money changers; capital note auctions are daily and open to commercial banks. - Auctions are linked to the overall monetary program and held regularly. - Reserve requirements have started to be implemented in May 2005. - Article IV Consultation: - Last Article IV consultation discussed by the Executive Board on January 19, 2005. - Consultations are on the standard 12-month cycle. - Technical Assistance, 2004–05 (departments and mission dates/purposes excerpted): - FAD: Resident Treasury Expert (March 2004 ongoing); Tax policy and administration (March 22–April 3, 2004); Customs administration (April 18–May 2, 2004); Seminar of reorganization of the MoF (May 19–25, 2005). - MFD: Anti-money laundering legislation (February 2–6, 2004); DAB capital adequacy and balance sheet structure (March 21–30, 2004); Training coordinator (December 2004 ongoing); Implementation of DAB balance sheet reconstruction (February 2–15, 2005); Monetary Policy and Financial Markets (May 16–25, 2005). - LEG: Anti-money laundering legislation (February 2–6, 2004); Fiscal revenue legislation (March 3–21, 2004); Income Tax Law (January 29–February 12, 2005). - STA: Multisector statistics missions and CPI work across 2004–2005 (multiple missions with dates listed). - MCD: Basic Macroeconomic Accounting Relationships and Introduction to Financial Programming (April 16–20, 2005). - Afghanistan participates in the Middle East Technical Assistance Center (METAC). - Resident representatives: - Resident representative in Pakistan assisted in 2002; resident representative in Kabul Mr. de Schaetzen took up post August 24, 2002; Mr. Charap succeeded him on June 13, 2005. - Staffing and TA notes: - A resident treasury expert for the Ministry of Finance, Mr. Platais, appointed in March 2004. - A resident multisector statistical advisor, Mr. Soulatha, was stationed in Kabul on July 17, 2002. - STA peripatetic missions suspended in July 2004 due to security; resumed January/February 2005; planned four missions totaling nine months over 12 months with first two missions January 15–February 15, 2005 and March 23–June 11, 2005. - Sweden-financed training and advisors for DAB, including a long-term training advisor Mr. Khan (appointed October 2004) and monetary policy peripatetic advisor Mr. Coats (financed December 2004–December 2005). *Source: _cr05237 - 43. The economic program for 2005/06 represents a strong and credible effort to address* ### 1. A second Transitional Support Strategy (TSS) was presented to the World Bank ### 1. A second Transitional Support Strategy (TSS) was presented to the World Bank ### World Bank strategy and timing - A second Transitional Support Strategy (TSS) was presented to the World Bank Board of Executive Directors in March 2003. - The TSS was due to be updated by March 2005 following the culmination of the political process outlined in the Bonn process. - Despite a successful presidential election in October 2004, legislative elections were postponed until September 2005, delaying the political process and the World Bank’s development of a new Interim Strategy Note. - The government has just started working on the National Development Strategy (I-PRSP) in 2005. - The World Bank will continue to assist the government under the existing TSS and will quickly prepare an Interim Strategy Note, or Country Assistance Strategy, in line with the government’s plans for the National Development Strategy. ### IDA credits and project approvals (FY 2002–FY 2005) - FY 2002: World Bank staff prepared and negotiated four projects to utilize IDA grant funds totaling $100 million. - March 2003: First IDA credit for $108 million for the Emergency Transport Project approved by the Board. - By end-FY 2003: Additional three projects approved: - Emergency Health Sector Rehabilitation ($59.6 million) - Emergency Public Administration II ($8.4 million) - National Emergency Employment II ($39.2 million) - Total allocation for FY 2003: $215 million. - FY 2004: Five IDA credits/grants negotiated, total $293 million: - Emergency Communications Project ($22 million) - Emergency Customs Modernization and Trade Facilitation ($31 million) - National Solidarity Program II ($95 million) - Emergency Irrigation Rehabilitation ($40 million) - Emergency Power Rehabilitation ($105 million) - FY 2005 (approved in July 2004): Four projects totaling $145 million: - Programmatic Support for Institution Building (first budget-support operation) ($80 million) - Kabul Urban Reconstruction Project ($25 million) - Investment Guarantee Facility ($5 million), together with MIGA - Education Quality Improvement Program ($35 million) - FY 2005 (approved in 2005): Two new projects and supplemental financing: - Public Administration Capacity Building ($27 million) - Strengthening Higher Education ($40 million) - Supplemental financing for the Emergency Transport Project ($45 million) - Planned end-June 2005: Additional National Solidarity Program commitment of $28 million. - Projected FY 2005 commitments after these approvals and plans: $285 million. ### Afghanistan Reconstruction Trust Fund (ARTF) - ARTF became effective in May 2002 and plays a critical role in funding recurrent government costs. - ARTF first year of operation (2002/03): mobilized $185 million and disbursed $65 million. - Paid-in contributions for 2003/04: $286 million; disbursements: $254 million. - Paid-in contributions for 2004/05: $380 million; disbursements: $292 million. - ARTF is increasing financing of investments and has potential to support tighter donor coordination, simplified processes, and fast results. ### World Bank advisory, analytical work, and PFM engagement - September 2004: World Bank released country economic report “State Building, Sustaining Growth, and Reducing Poverty.” - Current analytical work includes: civil service reform; urban development and land management; education policy reform; labor market and pensions; a gender assessment; oil/gas infrastructure development; and broader regional trade work with Afghanistan’s neighbors. - Initiated a major Public Finance Management (PFM) review, incorporating public expenditure and fiduciary aspects, including procurement and financial management. - Fund staff (IMF) are contributing to the PFM review, including analysis of domestic revenue prospects. - World Bank continues to utilize the Post Conflict Fund and Japan Social Development Fund resources for on-the-ground support. ### IDA portfolio and cumulative commitments - As of June 2005: active IDA portfolio of 17 investments (one project has closed). - Budget support operation approved July 2004. - Total commitments since 2001: $865 million, of which $429 million in grants. --- ### IMF Staff-Monitored Program (SMP) and MEFP update (May 18, 2005) - Discussions conducted with Fund staff on the fourth review under the SMP agreed in March 2004 and updated on September 6, 2004; December 29, 2004; and February 3, 2005. - MEFP update reviews macroeconomic developments and structural reform implementation during 2004/05 and describes objectives and policies for first half of 2005/06. - Program performance: - Met all end-March 2005 indicative quantitative indicators and structural benchmarks except the benchmark on completion of a survey of external debt, due to limited creditor response. - New end-September 2005 structural benchmark agreed for completion of the external debt survey; Government requested IMF assistance contacting creditors. - Macroeconomic developments and indicators for 2004/05: - Real GDP growth for 2004/5 estimated in line with SMP projection: 7.5 percent. - Consumer prices in Kabul increased by 3.2 percent during the fourth quarter. - Food prices increased by 5.8 percent during the fourth quarter. - Year-on-year inflation reached 16.3 percent at end-2004/05, compared with 10.2 percent a year earlier. - National CPI (five major cities plus Kabul) increased by 2.7 percent during the fourth quarter and by 10.9 percent year-on-year at end-2004/05. - Excluding rents, education fees, and petroleum products (less than 10 percent of the consumer basket), year-on-year inflation declined slightly in 2004/05 to 10.3 percent from 10.8 percent at end-2003/04. - Fiscal and revenue developments: - Provisional domestic revenue for 2004/05: Af 12,800 million (SMP indicative target: Af 12,784 million; budget forecast: Af 15,380 million). - May 2005 delayed collection of Af 797 million in overflight charges (accrued in 2004/05). - Customs duties exceeded target by approximately 20 percent and constituted about 50 percent of revenue. - Annual operating budget expenditure for 2004/05: Af 26.7 billion (midyear review projection: Af 29.1 billion; original budget: Af 30.3 billion). - Operating budget, including grants, recorded a modest surplus of Af 1.1 billion for the year. - Core budget development spending in 2004/05: Af 12.9 billion; external budget spending implemented directly by donors reported at $2 billion (budget estimates: Af 38.4 billion and $3.5 billion, respectively). - Tax and customs policy: - Amendments to income tax law and new customs code published in the Official Gazette in March 2005 to introduce a more efficient tax incentive regime. - Published estimate of revenue forgone from previous tax exemptions and concessions: $14.6 million for 2005/06 (equivalent to 4.4 percent of budgeted revenue), and over $30.2 million since 2003/04. - Monetary and financial sector developments: - Currency in circulation increased by 38 percent in 2004/05, reaching Af 39.6 billion at end-year (SMP indicative target: Af 39.8 billion). - DAB foreign currency auctions stepped up to $105 million (Af 5.1 billion) during the fourth quarter. - Foreign exchange reserves at end-fourth quarter: $1.3 billion (equivalent to 3.9 months of projected 2005/06 imports). - Interest rate on the overnight capital note: 1–2 percent; one-month note increased to 5 percent at end-March. - Nominal exchange rate appreciated by 3.4 percent in 2004/05 to Af 48.7 per U.S. dollar at end-year. - DAB measures: cessation of headquarters-based commercial activities completed by end-March; about 30 percent of relevant current accounts and 20 percent of savings accounts closed; remaining unclaimed or unidentified accounts transferred to a control account. - Ownership of silver and gold in palace vaults transferred to DAB; independent local expert began valuation. - DAB’s commercial holdings transferred to the government. - Audit of DAB’s end-2003/04 financial statements finalized. - Commercial banking law published in the Official Gazette; new banking regulations adopted by DAB’s Supreme Council. - Reserve requirements set at 8 percent and enforcement started. - External sector and current account: - Current account deficit excluding grants in 2004/05: 43.7 percent of GDP (down from 50.9 percent in 2003/04). - Including grants, current account was broadly balanced in 2004/05 (down from a 3.1 percent of GDP surplus in 2003/04). - External borrowing remained limited and highly concessional; net errors and omissions remained high. - Outlook and policy priorities for 2005/06: - Objectives: maintain macroeconomic stability, sustain economic growth, reduce poverty via sustainable fiscal and monetary policies, structural reforms to increase revenue mobilization, rationalize public spending, facilitate private sector development, and improve governance. - Real GDP growth expected in 2005/06: 13.6 percent (largely reflecting rebound in agricultural output due to better precipitation). - Inflation projected to decline to 10 percent year-on-year by end-2005/06. - Fiscal strategy: - Operating budget for 2005/06 approved before the fiscal year start (March 21). - No-overdraft policy maintained; operating budget funded from revenue and external grants. - Grants from ARTF and LOTFA expected to increase to cover over half of operating budget expenditures in 2005/06. - Operating budget provides for a 15 percent increase in recurrent spending over mid-year review projections for 2004/05; the lower-than-expected outturn for 2004/05 implies an increase of around 23 percent. - Core development spending financed through the treasury budgeted to increase from 4.5 percent of GDP in 2004/05 to 13.2 percent of GDP in 2005/06. - Development budget and donor coordination: - An ‘interim’ development budget was approved at start of fiscal year but was not fully funded because some donors had not confirmed commitments. - Government will request donors channel funds through the budget or via multidonor trust funds; additional donor funding committed for 2005/06 will be allocated to development spending unless it finances recurrent expenditures previously funded directly by donors, in which case it will be absorbed within the operating budget and presented in a supplementary budget. *Source: _cr05237 - 1. A second Transitional Support Strategy (TSS) was presented to the World Bank* ### 17. Improving the consistency of the budget presentation and developing a realistic ### 17. Improving the consistency of the budget presentation and developing a realistic medium-term fiscal framework ### Budget presentation and medium-term fiscal framework - Current presentation of the budget combines cash and commitment concepts and significantly overstates the actual amount of spending expected within the year. - Commitments: - Continue to improve transparency and realism of the development budget formulation and reporting. - Adopt a more standard and consistent cash-based presentation of the budget within a medium-term framework. - Provide regular quarterly reports on the core budget. - Midyear review: - Prior to the midyear review, any additional domestic revenue above the budget forecast will be used to either: (i) offset shortfalls in budgeted grant resources for the operating or development budgets; or (ii) build the government’s prudential cash reserves. - The midyear review will assess scope for budgetary adjustments in collaboration with the donor community and in light of the National Development Strategy (NDS). ### Public administration, wage bill, and borrowing - Salary costs represent about 75 percent of operating expenditures and are expected to increase over the medium term due to public administration reforms and absorption of additional security spending (notably the Afghan National Army). - Policy stance: - Contain pressures for generalized or sector specific pay increases. - Quantitative limits on the wage bill to be considered within a comprehensive medium-term public administration reform. - Until a comprehensive program is in place (hopefully for the next fiscal year), contain the wage bill consistent with implementation of the Priority Restructuring and Reform (PRR) program. - Continue to limit borrowing to highly concessional external loans. ### Domestic revenue, customs, and tax administration reforms - Domestic revenue projection: - Domestic revenue for 2005/06 should be higher than budgeted. - The SMP target for 2004/05 was achieved despite a delay in receipt of the overflight charges, suggesting higher domestic revenue for 2005/06. - The updated forecast for 2005/06 accounts for the payment of two overflight charges and is based on the higher-than-expected 2004/05 outturn of other domestic revenue. - The budget forecast will not be amended at this time. - Customs and tax reform priorities: - Focus on medium-term reforms to improve compliance, taxpayer education, and identifying high-potential revenue areas rather than quick actions. - Rationalize ‘nuisance’ taxes (notably fixed taxes) and remove illicit charges. - Priority for the large taxpayer office (LTO) to identify and work with main clients rather than divert resources to smaller taxpayers. - Accelerate restructuring of revenue headquarters and new provincial revenue offices. - New tax revenue enforcement powers to be in place by end-September 2005. - Develop new regulations to support the new customs code, improve customs infrastructure, roll out a computerized management information system, and introduce the new customs police service. - IMF technical assistance requested to review and prioritize customs and tax reform programs. ### Public financial management and structural reforms - Commitments and timelines: - Promulgate the new public financial management law by end-June 2005 and develop accompanying financial regulations shortly thereafter. - New system linking the Ministry of Finance with DAB enables more prompt reconciliation of government bank accounts with expenditure data; confident of meeting end-September 2005 structural benchmark. - Approved timetable to submit audited financial statements to parliament before end-September 2005. - Structural impediments: - Continue addressing structural impediments to better fiscal management. ### Monetary policy and exchange rate - Monetary policy guidance: - Monetary policy guided by the monetary program developed with Fund staff at the time of the third review. - Conservative approach warranted given increase in prices in the fourth quarter of last year despite upward revision of growth projections for 2005/06. - End-June indicative target for gross international reserves was revised downward to allow possible tightening when government draws down deposits with DAB. - Revised target is consistent with a coverage of four months of prospective imports at end-2005/06. - Exchange rate will remain flexible: DAB may intervene to smooth short-term fluctuations but will not resist persistent pressures, especially when resistance conflicts with reducing inflation. - Monetary program will remain flexible, allowing revision of the monetary stance in consultation with the Fund when warranted by exchange rate and price developments. ### DAB balance sheet, monetary reporting, and banking sector modernization - DAB restructuring and reporting: - Transfer of DAB’s commercial activities remains a priority. - By end-September, finalize transfer of these activities in Kabul’s 14 city branches and in the 10 provincial branches located where at least one commercial bank operates. - By end-June, publish DAB’s audited 2003/04 financial statements. - Determine adequacy of DAB capitalization in light of preliminary estimate of gold and silver held in the palace vault; anticipate DAB to be adequately capitalized but ready to take recapitalization action if needed. - Work with commercial banks to improve timeliness and reliability of monetary reporting. - Banking sector modernization: - Explore broadening DAB’s monetary instruments to strengthen control over liquidity, develop an interbank market, and modernize foreign exchange and capital note auctions. - Address administrative impediments to banking sector development (e.g., absence of laws supporting financial market development and high fees such as property registration). - Play a more active role in restructuring state-owned banks with technical assistance. - By end-June 2005, decide on specific resolution process for each former state-owned bank that was not relicensed and begin implementation. - By end-September 2005, prepare a long-term strategic plan for restructuring the three state-owned banks. ### External accounts, balance of payments, and debt management - External outlook and assumptions: - Expect current account balance to deteriorate slightly in 2005/06 to a deficit of 0.5 percent of GDP under relatively conservative assumptions on donor inflows and private investment flows. - Over the medium term, imports expected to remain high and continue to be financed through donor inflows. - Higher domestic and foreign investment expected to help expand export base. - Balance of payments and statistics: - Improved framework for compiling balance of payments in line with international standards; trade data reconciled with national accounts and key components compiled using surveys. - Begin to compile balance of payments data on a quarterly basis over the next few months and implement IMF technical assistance recommendations. - Request further external support for statistical agencies to implement proposed surveys. - Debt strategy: - Committed to cautious external debt management relying on grant financing and highly concessional borrowing. - Seek generous debt relief from existing bilateral creditors consistent with the SMP. - End-March 2005 benchmark to complete full reconciliation of survey of external debt was not met due to limited creditor response. - Commit to continue efforts and complete the survey of external debt by end-September 2005 (new structural benchmark). - Intend to seek assistance of the Paris Club Secretariat to contact Paris Club creditors and welcome IMF staff assistance to facilitate contacts with non-Paris Club creditors. ### Structural reforms, SOEs, and investment climate - Reforms to promote private investment: - Introduce a modern and simplified tax system, establish an adequate legal framework for business, simplify procedures for enterprises, and publish an investment law in the Official Gazette. - Focus on restructuring state-owned enterprises (SOEs). - Classification of SOEs by envisaged restructuring method and an economic restructuring plan to be adopted by the Cabinet by end-September 2005. ### Poverty reduction strategy and institutional arrangements - National Development Strategy and I-PRSP: - Working with donors to prepare a National Development Strategy that will form the basis for an Interim Poverty Reduction Strategy Paper (I-PRSP) by end-October 2005. - Establish institutional framework to coordinate and conduct work on the I-PRSP. - Working group of predominantly Afghan experts now in place and will work under an Inter-Ministerial Committee to be established shortly. ### Statistical improvements and surveys - Commitments and planned surveys: - Adopt a statistical law by end-September 2005. - Restructure the Central Statistical Office with donor support. - Launch in June–July 2005 three key surveys: - National risk vulnerability assessment survey on rural households. - Integrated living standard survey on household income and expenditure. - Integrated business enterprise survey expected to cover a sample of about 1000 medium and large enterprises. - Surveys to strengthen the statistical database and feed into poverty reduction work for the National Development Strategy. ### Technical assistance and program monitoring - Technical assistance: - Assess technical assistance received from various donors to rationalize and redeploy resources to broaden ownership of the reform program. - Appreciate recent IMF technical assistance program addressing needs in fiscal, monetary, consumer price inflation, balance of payments, and legal areas. - SMP monitoring and institutional roles: - SMP monitored using definitions, data sources, and frequency in the attached Technical Memorandum of Understanding (TMU). - Quantitative indicators for end-June 2005 and end-September 2005 included in Table 1; structural benchmarks in Table 2. - Government to provide Fund staff all core data, appropriately reconciled and timely, and notify Fund staff prior to policy actions that might impact the program. - Technical Coordination Committee (TCC) to monitor implementation of the SMP and provide core data; broaden role to develop analytical capacity and engage with NDS and I-PRSP macroeconomic work. - Discussions on the fifth review scheduled for early August 2005 based on indicative targets and benchmarks for end-June 2005; indicators and benchmarks for end-September 2005 may be revised then. ### Selected quantitative indicators (Table 1 highlights) - Currency in circulation (ceiling) 1/: - Dec. 20 (Indicative Target): 9,265 - Dec. 20 (Preliminary Estimate): 8,315 - Mar. 20 (Indicative Target): 10,954 - Mar. 20 (Preliminary Estimate): 10,847 - Jun. 20 (Indicative Target): 2,453 - Sep. 20 (Indicative Target): 5,057 - Claims of the banking system on the central government (ceiling): 0 (all periods shown) - Gross international reserves of the central bank (floor) (in millions of dollars): - Dec. 20 (Indicative Target): 115.0 - Dec. 20 (Preliminary Estimate): 469.5 - Mar. 20 (Indicative Target): 115.0 - Mar. 20 (Preliminary Estimate): 445.4 - Jun. 20 (Indicative Target): -50 - Sep. 20 (Indicative Target): 0 - Revised target consistent with coverage of four months of prospective imports at end-2005/06. - Fiscal revenue of the central government (floor): - Dec. 20 (Indicative Target): 8,649 - Dec. 20 (Preliminary Estimate): 8,880 - Mar. 20 (Indicative Target): 12,784 - Mar. 20 (Preliminary Estimate): 12,800 - Jun. 20 (Indicative Target): 4,629 - Sep. 20 (Indicative Target): 8,306 - External debt (new nonconcessional debt ceilings): all entries 0 - Memorandum item: Currency in circulation (level triggering consultation): - Dec. 20: 10,702 - Mar. 20: 12,392 - Jun. 20: 3,508 - Sep. 20: 7,298 - Note: At end-2003/04, currency in circulation amounted to Afs 28.8 billion. ### Structural benchmarks (Table 2 highlights) - Implemented (End-March 2005): - Publish in the Official Gazette the amendments to the revenue laws: (i) enacting the income tax reform package; and (ii) ensuring that the revenue laws supersede all other legislation in revenue-related matters. - Consolidate all recent revenue measures into the existing revenue code and publish as a single document. - Transfer of DAB’s commercial holdings to the Ministry of Finance, and transfer of ownership of marketable gold and silver in the palace vaults to the DAB. - Improve government payments by initiating (i) a system of non-cash payments to vendors; and (ii) a pilot for direct salary payments for the employees of two ministries. - Approve (by the Cabinet) the Customs Code. - Ensure that budget allotments and authorized staff positions are established for all budget users (center and provinces) to allow timely salary payments every month. - Publish an official estimate of the annual revenue forgone as a result of tax holidays, exemptions or concessions and a time-bound plan, approved by the Ministry of Finance, to address all existing tax exemptions or concessions. - Publish in the Official Gazette the banking law. - Not implemented (End-March 2005): - Complete the survey of external debt, including reconciliation with creditors. 1/ - Pending/Targeted: - Adopt (by the Cabinet) and publish in the Official Gazette the financial management law. — End-June 2005 - Publish the financial statements of the 2003/04 external audit of DAB. — End-June 2005 - Reconcile the government accounting records with the government’s bank account. — End-September 2005 - Publish the 2004/05 audited financial statements (core budget). — End-September 2005 - Adopt (by Cabinet) a comprehensive external debt management strategy. — End-September 2005 - Contact the Secretariat of the Paris Club to assist with comprehensive review and reconciliation of debt owed to Paris Club creditors and continue contacting non-Paris Club creditors for full reconciliation. — End-September 2005 - Publish in the Official Gazette proposed amendments to the income tax law to provide for administrative powers and for additional corporate tax reform measures. — End-September 2005 - Commence implementation of recently approved tax measures (business receipt tax on hotels, restaurants, telecommunications, and airlines and the wage withholding tax) accompanied by a taxpayer education program. — End-September 2005 - 1/ Some donors did not respond to the authorities’ request for debt reconciliation. ### Amendment to the Technical Memorandum of Understanding (TMU) - Paragraph 5 replacement: - “Currency in circulation is defined as total currency (new Afghani) issued by DAB. It excludes currency held in the presidential palace vault, in DAB main vault, and in the vaults of DAB’s provincial branches, but includes currency in the vaults of DAB’s district branches.” *Source: _cr05237 - 17. Improving the consistency of the budget presentation and developing a realistic (PDF chapter/section).* --- _Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2005/_cr05237.pdf_