## _cr05371 — Executive Summary and Key Findings

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---

### Macroeconomic outcomes and outlook
- Real GDP growth
  - 2004/05 growth estimate adjusted to 8 percent.
  - 2005/06 growth projection: initially noted as 14 percent; staff and authorities agreed to maintain a projection of 13.6 percent for 2005/06.
  - 2006/07 projection: 11.2 percent (on the assumption agricultural growth returns to trend).
- Inflation
  - Year-on-year inflation declined to 11.5 percent at end-June 2005, down from 16.3 percent at end-2004/05.
  - Expected to decline to 10 percent by end-2005/06 and to 8 percent by end-2006/07.
- Exchange rate and reserves
  - Real exchange rate remained broadly stable during the first quarter of 2005/06.
  - Currency in circulation: Af 40.1 billion at end-June (projection Af 39.2 billion; ceiling Af 41.2 billion).
  - International reserves: $1.3 billion at end-June (equivalent to 3.8 months of 2006/07 imports).
  - International reserves expected to increase to about $1.7 billion at end-2005/06 (equivalent to 4.8 months of 2006/07 imports).
- Monetary stance and instruments
  - Program provides for a further tightening of the monetary stance for 2005/06; exchange rate will remain flexible/market-determined.
  - Overnight capital note interest: 1–2 percent; 30-day note: 5–6 percent during the first quarter.
  - DAB to introduce an overnight collateralized credit facility against capital notes and publish capital note interest rates.

### Fiscal outcomes, revenue performance, and wage policy
- Q1 2005/06 fiscal results and projections
  - Fiscal revenue for Q1 2005/06 estimated at Af 4,757 million (SMP indicative target Af 4,629 million).
  - Core budget operating spending in Q1: Af 6.6 billion; annual operating budget projection Af 32.9 billion.
  - Operating budget (including grants) recorded a small Q1 deficit covered by a drawdown of domestic deposits.
- Revenue strategy and targets
  - SMP revenue projection for 2005/06: 5.2 percent of GDP (noted higher than budget projection).
  - SMP revenue target: Af 18,328 million; budget target: Af 16,150 million.
  - Immediate measures: full implementation of customs and tax administration reforms; strengthen the Large Taxpayer Unit; establish tax enforcement powers by end-September 2005; roll-out of tax identification number system; implement recently approved tax measures.
  - Further options: elimination of “nuisance taxes,” strengthen monitoring of exemptions, consider extension of the tax base (possibly through excise taxes).
  - Notable composition issue: projected revenue increase includes overflight fees accrued in 2004/05 (Af 800 million); excluding that, projected increases align with covering the wage bill within four years.
- Wage adjustment
  - Last general public wage increase: November 2003.
  - Midyear review (MYR) wage adjustment for nonuniformed civil servants limited to no more than Af 600 million in 2005/06 (equivalent to 3 percent of operating budget salary costs), to be financed from expected surplus in domestic revenues.
  - Authorities committed to adopt by end-December 2005 a clear, affordable, and realistic Medium-Term Fiscal Framework (MTFF).

### External sector, capital flows, and debt management
- Current account and financing
  - Current account deficit excluding grants declined to 45 percent of GDP in 2004/05, from 50.9 percent of GDP in 2003/04.
  - Including grants, current account recorded a surplus equivalent to 0.7 percent of GDP in 2004/05, down from 3.1 percent of GDP in 2003/04.
  - Current account deficit excluding grants projected to reach 44.8 percent of GDP in 2005/06; including grants, a surplus of 0.5 percent of GDP expected in 2005/06.
  - Over the medium term, deficit excluding grants expected to decline to 31 percent of GDP by 2007/08.
- Capital flows and reserves
  - Foreign direct investment increased substantially (from a low base).
  - External borrowing remained limited and highly concessional; authorities committed to rely only on grant financing and highly concessional borrowing.
  - Gross foreign exchange reserves (selected series): 815.9; 1,261.3; 1,691.4; 2,035.9 (in millions of U.S. dollars, series reported in the document).
- External sustainability concerns
  - Even under a “clean slate” assumption for existing bilateral debts and claims, external sustainability could be at risk unless strong economic and revenue performance continues and government financing strategy relies on grants and highly concessional borrowing.
  - Efforts underway to complete external debt survey and design an external debt management strategy; liaise with Paris Club Secretariat and non-Paris Club creditors.

### Banking sector, central bank modernization, and monetary operations
- DAB modernization and balance-sheet actions
  - Rationalize DAB’s balance sheet: reimburse, transfer, or freeze commercial accounts in DAB’s Kabul branches and other branches in provinces where at least one fully-licensed commercial bank operates.
  - Process gold held in palace vaults into a form that qualifies as a reserve asset and transfer monetary gold held in Afghanistan to an international gold center (timebound actions specified).
  - Introduce an overnight collateralized credit facility against capital notes; allow participants in foreign currency auctions to sell as well as buy U.S. dollars.
  - Publish capital note interest rates; consider longer-maturity notes if demand increases.
- Banking sector reforms and state-owned banks
  - Intend to tackle administrative and legal impediments to banking sector development; review mortgage, insurance, land titling, and property registration laws.
  - Decision to liquidate the three former state-owned banks, including the Agricultural Development Bank; issue formal statement and appoint liquidators.
  - Prepare long-term strategic plans for restructuring licensed state-owned banks with clear timetables; assign new management teams or engage management advisors.
- Monetary aggregates and indicators (selected)
  - Currency in circulation: series include 28,801; 38,763; 39,163; 40,084; 43,820; 46,585; 49,521; 50,678; 54,799; 57,617; 60,640 (levels in millions of Afghanis).
  - Reserve money series: 31,124; 41,063; 41,701; 42,247; 46,195; 49,173; 52,321; 53,744; 58,133; 61,217; 64,340 (millions of Afghanis).
  - DAB deposits estimated at about Af 20 billion at end-June 2005 (available as contingency).

### Structural reforms, public financial management, and SOEs
- Public Financial Management (PFM)
  - New Public Financial Management Law promulgated in June 2005.
  - Ministry of Finance began publishing monthly statements of core fiscal performance and intends a regular quarterly fiscal bulletin.
  - Consolidation into Treasury Single Account (TSA) and reconciliation of Mustofiats (provincial treasuries) remain priorities; reform plan for Mustofiats to be implemented with donor support.
  - MTFF required by end-December 2005 to integrate macroeconomic and fiscal targets.
- State-Owned Enterprises (SOEs) and divestment
  - Expect adoption by end-September 2005 of an overall economic restructuring plan and classification of SOEs by envisaged restructuring method.
  - Retrenchment programs associated with divestment should be fiscally sustainable.
  - Structural benchmarks include completion of SOE financial assessments and Cabinet adoption of Economic Restructuring Plan.
- Fiscal transparency and reporting
  - Structural benchmarks include consolidation of line ministry accounts into TSA; regular transfer and reporting of provincial balances; publication of fiscal data at least quarterly with province-level detail where possible.

### Opium, poverty, and National Development Strategy (NDS) / I-PRSP
- Opium and livelihoods
  - Opium cultivation expected to decline significantly in 2005 due to anti-narcotics campaign and low farm gate prices; production drop expected to be more moderate due to rebound in yields.
  - UNODC preliminary estimates for 2005 (released August 29): opium cultivation declined by 21 percent in 2005, while production declined by 2 percent.
- Poverty reduction, diversification, and NDS
  - Immediate post-conflict growth driven by wheat production, construction, and some services; diversification needed to sustain long-term growth and reduce poverty.
  - Work on NDS to form the basis of an I-PRSP slated for completion by end-December 2005 to present development priorities to donor conference scheduled for January/February 2006.
  - MTFF and NDS expected to guide donor coordination and encourage channeling assistance through the core budget.

### Program conditionality, monitoring, risks, and technical assistance
- SMP extension and monitoring
  - Authorities requested a 12-month extension of the SMP through end-September 2006; staff supported the request and noted it would not preclude entering a PRGF or other formal arrangement once the I-PRSP is finalized.
  - New quantitative indicators and structural benchmarks agreed through end-September 2006; sixth review under the SMP tentatively scheduled for November 2005 (to assess performance through end-September 2005).
  - Monitoring framework and definitions set out in a Technical Memorandum of Understanding (TMU); government to provide data as specified.
- Main program risks
  - Domestic insecurity.
  - Persistence of opium-related activities.
  - Uncertainty surrounding the composition of the parliament.
- Technical assistance and statistics
  - Measures underway to implement the statistical master plan (adopted September 2004); plan to adopt a statistical law by end-September 2005 and launch key surveys before year-end (surveys subject to delays).
  - Fund technical assistance summarized across FAD, MFD, LEG, STA, and MCD missions; participation in METAC and resident advisors noted.

### Selected key quantitative figures (as reported)
- GDP (excluding opium, in millions of U.S. dollars): 2,463; 4,084; 4,585; 5,971; 7,130; 8,562
- GDP (in millions of Afghanis): 133,987; 182,862; 225,108; 284,504; 355,338; 426,668
- GDP per capita (U.S. dollars): 123; 182; 199; 253; 293; 342
- Exports of goods (including reexports, in millions of U.S. dollars): 708.9; 1,290.6; 1,893.9; 1,656.1; 1,892.7; 1,959.0
- Imports of goods (in millions of U.S. dollars): 1,645.0; 2,508.2; 3,785.9; 3,866.9; 4,560.0; 4,912.5
- Current account deficit (excluding grants, in millions of U.S. dollars): -1,363.7; -2,334.7; -2,687.5; -3,196.1; -3,414.7
- Gross foreign exchange reserves (selected end-of-period levels; in millions of U.S. dollars): 815.9; 1,261.3; 1,691.4; 2,035.9
- Currency in circulation (selected levels, in millions of Afghanis): 28,801; 38,763; 39,163; 40,084; 43,820; 46,585; 49,521; 50,678; 54,799; 57,617; 60,640
- Core budget operating expenditures (annual projection): Af 32.9 billion; Q1 outturn Af 6.6 billion
- Domestic government revenue (in percent of GDP): 3.2; 4.5; 4.5; 4.5; 5.2; 5.2
- Opium production and value (selected series reported): opium production (metric tons) series includes 3,400; 3,600; 4,200 (selected entries); opium value series includes 2,540; 2,300; 2,800 (selected entries)

*Source: _cr05371 — IMF staff report content provided in the input.*

### Executive Summary ......................................................................................................

### Executive Summary

### Program performance and macroeconomic outcomes
- The authorities met all end-June 2005 indicative quantitative targets and structural benchmarks under the Staff-Monitored Program (SMP).
- Real GDP growth:
  - 2004/05 growth estimate adjusted to 8 percent (to reflect a more buoyant manufacturing sector).
  - 2005/06 growth projection: 14 percent (noted in the Executive Summary initial assessment); staff and authorities agreed to maintain a projection of 13.6 percent for 2005/06 (see section III.A).
  - 2006/07 projection: 11.2 percent (on the assumption agricultural growth returns to trend).
- Inflation:
  - Year-on-year inflation declined to 11.5 percent at end-June 2005, down from 16.3 percent at end-2004/05.
  - Expected to decline to 10 percent by end-2005/06 and to 8 percent by end-2006/07.
- Exchange rate and reserves:
  - Real exchange rate remained broadly stable during the first quarter of 2005/06.
  - Currency in circulation: Af 40.1 billion at end-June (projection Af 39.2 billion; ceiling Af 41.2 billion).
  - International reserves: $1.3 billion at end-June (equivalent to 3.8 months of 2006/07 imports).
- Monetary stance: program provides for a further tightening of the monetary stance for 2005/06; the exchange rate will remain flexible. Overnight capital note interest: 1–2 percent; 30-day note: 5–6 percent during the first quarter.

### Fiscal outcomes and revenue strategy
- Revenue and spending:
  - Fiscal revenue for Q1 2005/06 estimated at Af 4,757 million, slightly exceeding the SMP indicative target of Af 4,629 million.
  - Core budget operating spending in Q1: Af 6.6 billion; annual budget projection Af 32.9 billion.
  - The operating budget, including grants, recorded a small deficit in Q1, covered by a drawdown of domestic deposits.
- Revenue policy priorities and measures:
  - SMP revenue projection for 2005/06 is 5.2 percent of GDP (noted as higher than the budget projection).
  - Immediate revenue-strengthening measures agreed: full implementation of customs and tax administration reforms; strengthening the large taxpayer unit; establishing tax enforcement powers by end-September 2005; roll-out of tax identification number system; implementation of recently approved tax measures.
  - Further options for improving revenue: elimination of “nuisance taxes,” strengthening monitoring of exemptions, extension of the tax base (possibly through excise taxes).
  - The Ministry of Finance plans a revenue policy conference in October to discuss options.
- Notable revenue composition issues:
  - The increase in projected revenue for 2005/06 reflects the collection in 2005/06 of overflight fees accrued in 2004/05 (Af 800 million). Excluding this exceptional revenue, the projected increase is consistent with covering the wage bill within four years.
  - Customs revenue rose by 40 percent over the same period of last year, offsetting a decline in domestic tax revenue in Q1.

### External sector and debt
- Current account:
  - Current account deficit excluding grants declined to 45 percent of GDP in 2004/05, from 50.9 percent of GDP in 2003/04, largely due to a slowdown in imports and a decline in smuggled imports.
  - Including grants, the current account recorded a surplus equivalent to 0.7 percent of GDP in 2004/05, down from 3.1 percent of GDP in 2003/04.
- Capital flows:
  - Foreign direct investment increased substantially (from a low base).
  - External borrowing remained limited and highly concessional.
- External sustainability concern:
  - Even under a “clean slate” assumption for existing bilateral debts and claims, external sustainability could be at risk unless strong economic and revenue performance continues and the government financing strategy relies on grants and highly concessional borrowing.

### Structural reforms, financial sector, and public administration
- Structural progress:
  - Progress was broadly satisfactory in many areas but slower-than-envisaged for some reforms, notably the resolution/restructuring of former state-owned banks.
  - The new public financial management law was promulgated in June 2005; monthly statements of core fiscal performance have begun.
  - Integration of the former Accounting Department of the Ministry of Finance into the Treasury was deferred by several months pending approval of a restructuring plan by the Independent Administrative Reform and Civil Service Commission.
- Banking sector and Da Afghanistan Bank (DAB):
  - Authorities pursuing modernization of the banking sector: restructuring relicensed state-owned banks, liquidating those not relicensed, modernizing DAB’s operations, and creating an enabling environment for lending.
  - Some headway in rationalizing DAB’s balance sheet and strengthening the monetary policy institutional framework.
  - Little progress in formally resolving the former state-owned banks; discussions and donor interest persist about reviving the Agricultural Development Bank for rural financing and alternative livelihoods.
- Public administration:
  - Staff and authorities reached understandings on a wage adjustment for non-uniformed civil servants effective from the second half of 2005/06, consistent with medium-term fiscal sustainability and ongoing public administration reforms.

### Opium, livelihoods, and poverty
- Opium:
  - Opium cultivation expected to decline significantly in 2005, reflecting the authorities’ anti-narcotics campaign and relatively low farm gate prices; the drop in production expected to be more moderate due to a rebound in yields.
  - UNODC preliminary estimates for 2005 (released August 29) were broadly in line: opium cultivation declined by 21 percent in 2005, while production declined by 2 percent.
- Poverty and growth diversification:
  - Immediate post-conflict growth has been driven by wheat production, construction, and some services; diversification is needed to sustain long-term growth and reduce poverty.
  - Authorities are pursuing initiatives to create an adequate legal framework for private sector investment and to reduce the share of the public sector in the economy, though progress has been slower-than-envisaged.

### Program extension, monitoring, and risks
- SMP extension:
  - The authorities requested a 12-month extension of the SMP through end-September 2006 to provide a framework to maintain macroeconomic stability, pursue structural reforms, improve capacity to implement a formal arrangement, and finalize their national development strategy (NDS), which will form the basis for an Interim Poverty Reduction Strategy Paper (I-PRSP).
  - It is understood Afghanistan is not precluded from entering a PRGF or other formal arrangement before the SMP expires, particularly once the I-PRSP is finalized.
- Monitoring and conditionality:
  - Staff and authorities agreed on an updated medium-term macroeconomic framework for 2005/06–2007/08 and a set of new quantitative indicators and structural benchmarks through end-September 2006.
- Main risks to program implementation:
  - Domestic insecurity.
  - Persistence of opium-related activities.
  - Uncertainty surrounding the composition of the parliament.

_Source: _cr05371 - Executive Summary_

### 13.      To partially compensate for the real erosion of public wages—the last wage

### _cr05371 - 13.      To partially compensate for the real erosion of public wages—the last wage

### Fiscal policy, wages, and medium-term fiscal framework (MTFF)
- Last public wage increase was granted in November 2003.
- Authorities decided to adjust wages for nonuniformed civil servants at the midyear review (MYR), limited to no more than Af 600 million in 2005/06 (equivalent to 3 percent of operating budget salary costs), to be financed from the expected surplus in domestic revenues compared with budget estimates.
- Such a wage adjustment is intended not to unduly compromise the move toward fiscal sustainability and should be consistent with ongoing public administration reforms.
- Authorities committed to adopt by end-December 2005 a clear, affordable, and realistic MTFF to integrate macroeconomic and fiscal targets and lead toward fiscal sustainability.
- More realistic budget formulation, particularly regarding development expenditures, would enhance budget credibility and could encourage donors to channel more funds through the budget.

### Monetary and exchange rate policy; central bank balance-sheet and operations
- Monetary program for 2005/06 kept unchanged; it provides for a further tightening of the monetary stance during the remainder of the year, consistent with DAB’s primary objective to bring inflation under 10 percent by year-end.
- The growth of currency in circulation is projected to decline from 35.8 percent year-on-year at end-June 2005 to 27.8 percent year-on-year at end-2005/06.
- Monetary program will remain flexible to accommodate unanticipated shifts in currency demand; exchange rate will continue to be market-determined.
- International reserves are expected to increase further, to about $1.7 billion at end-2005/06, equivalent to 4.8 months of 2006/07 imports.
- Authorities committed to rationalize DAB’s balance sheet and modernize operations:
  - Reimburse, transfer, or freeze commercial accounts in DAB’s Kabul branches and other branches in provinces where at least one fully-licensed commercial bank operates.
  - Process gold held in palace vaults into a form that qualifies as a reserve asset and transfer the monetary gold held in Afghanistan to an international gold center.
  - Introduce an overnight collateralized credit facility against capital notes; allow participants in foreign currency auctions to sell as well as buy U.S. dollars.
  - Publish capital note interest rates; consider longer-maturity notes if demand for capital notes increases.

### Banking sector reforms and state-owned banks
- Authorities intend to tackle administrative and legal impediments to banking sector development; will work with banking and donor communities to strengthen regulatory and institutional framework.
- Will review key laws (mortgage law, insurance law, land titling and property registration law) to determine need for amendments and measures for proper enforcement.
- Authorities see need to eliminate or substantially reduce very high registration fees for deeds to bring them in line with international standards.
- Authorities committed to intensify efforts to resolve former state-owned banks and restructure licensed state-owned banks:
  - Decided to liquidate the three former state-owned banks, including the Agricultural Development Bank, and to issue a statement to that effect.
  - Reaffirmed commitment to prepare a long-term strategic plan for restructuring the three state-owned banks with a clear implementation timetable and to assign new management teams or engage management advisors.

### External sector prospects and debt management
- External sector prospects viewed as favorable.
- Current account deficit, excluding grants, projected to reach 44.8 percent of GDP in 2005/06, compared with 45 percent of GDP a year before.
- Including grants, the current account is expected to record a surplus of 0.5 percent of GDP in 2005/06.
- Over the medium term, current account deficit excluding grants expected to decline to 31 percent of GDP by 2007/08, driven by sustained rise in exports, decline in imports related to donor-financed activities, and substitution of some imports with domestically-produced goods.
- Authorities committed to rely only on grant financing and highly concessional borrowing; external borrowing expected to remain relatively modest over the medium term.
- Efforts underway to complete external debt survey and design an external debt management strategy:
  - Government liaising with Paris Club Secretariat to ensure no obligations outstanding vis-à-vis Paris Club creditors.
  - Renewed contacts with non-Paris Club creditors; staff to assist authorities in exchanges with non-Paris Club creditors.
  - First draft of an external debt management strategy submitted to Cabinet.

### Structural reforms and business climate
- Authorities intend to improve the business climate via a modern and simplified tax system, improved procedures for enterprise creation, and an adequate legal framework for private sector investment.
- Working with World Bank on an investment climate assessment.
- Expected adoption by end-September 2005 of an overall economic restructuring plan and classification of state-owned enterprises (SOEs) by envisaged restructuring method.
- Retrenchment program to accompany government divestment from SOEs should be fiscally sustainable and could set precedent for future civil service retrenchment.

### Poverty reduction and National Development Strategy (NDS) / I-PRSP
- Work on the NDS will form the basis of an I-PRSP slated for completion by end-December 2005 to present development strategy priorities to the donor conference scheduled for January/February 2006.
- Extensive consultation process noted; future effort should shift to analyzing determinants of poverty, sources of growth, and integrating medium-term fiscal choices within an MTFF.

### Data, statistics, and technical assistance (TA)
- Data provision and quality remain weak despite recent progress; measures under way to implement statistical master plan adopted in September 2004, including restructuring of the Central Statistical Office (CSO).
- Authorities intend to adopt by end-September 2005 a statistical law providing legal framework for data collection, processing, and publication, and to launch before year-end key economic surveys.
- Government taking steps to join the General Data Dissemination System (GDDS).
- Authorities intend to finalize by year-end an assessment of TA received to date to redeploy TA resources; elections and security risks could disrupt TA provision, but Fund remains willing to provide TA support.

### Program conditionality, monitoring, and staff appraisal
- Conditionality includes quarterly indicative quantitative targets and structural benchmarks through end-September 2006; sixth review under the SMP tentatively scheduled for November 2005 will assess performance through end-September 2005.
- A Technical Memorandum of Understanding (TMU) provides program design and terminology; authorities will make available to Fund staff all data specified in the TMU.
- Staff appraisal highlights:
  - All end-June 2005 indicative quantitative targets and structural benchmarks were met.
  - Economic rebound observed in first months of 2005/06, led by agricultural recovery; some reduction in opium cultivation.
  - Medium-term growth prospects favorable due to reconstruction, donor support, and sustained activity in construction and services.
  - Main challenges: maintain high growth and reduce poverty by continuing stabilization, improving investment environment, addressing drug economy risks, infrastructure gaps, cumbersome procedures, and insecurity.
  - Fiscal program for 2005/06 remains sound; “no overdraft” financing rule maintained; authorities broadly on track to achieve SMP revenue-to-GDP ratio of 5.2 percent, contingent on tax and customs reforms and collection of overflight fees accrued in 2005/06.
  - DAB deposits were estimated at about Af 20 billion at end-June 2005 (available as contingency in event of unexpected liquidity shortage).
  - Staff recommended intensifying efforts to eliminate the drug economy and to modernize DAB operations and banking-sector reforms.
  - Authorities requested a further 12-month extension of the current SMP; staff supported the request and noted it would not preclude entering into a formal arrangement during the extension, particularly once the I-PRSP is finalized.

*Source: IMF staff report content provided in the input.*

### 37.      Together with the discussions for the 2005 Article IV consultation, discussions

### _cr05371 - 37.      Together with the discussions for the 2005 Article IV consultation, discussions

### Upcoming reviews and staff focus
- Sixth review under the SMP will take place in November 2005.
- Main areas of staff attention:
  - The findings of the MYR.
  - Fiscal and external sustainability.
  - External competitiveness.
  - Tax and customs reforms.
  - The macroeconomic effects of a successful anti-narcotics policy.
  - Bank restructuring.

### Price developments (selected indicators)
- Consumer Price Index (Kabul) series (year-on-year change; in percent) as presented:
  - CPI (Kabul, year-on-year change; in percent): -43.4, 52.2, 10.2, 16.3, 10.0, 8.0
  - CPI (Kabul, average change; in percent): ...5.0, 23.9, 14.3, 11.2, 8.9
- Rents index (100 = March) shown for March–Feb period with series labels 2003/04, 2004/05, 2005/06 (indices plotted up to 180+ in chart; last observation: June 2005).

### Monetary developments and central bank indicators
- Domestic currency in circulation (annual change; in percent): ...20.1, 40.9, 37.5, 27.8, 22.5
- Capital note auction interest rates (plotted): Overnight notes and 30-day notes (interest rate; in percent) observed in period Sep-04 to Jun-05 with rates between 0 and 6 percent (chart detail).
- Da Afghanistan Bank foreign exchange reserves and government foreign currency deposits (in millions of U.S. dollars) plotted Mar-04 to Jun-05:
  - DAB's foreign exchange reserves and government foreign currency deposits series range shown from 0 up to 1,400 (chart; last observation: June 30, 2005).

### Foreign exchange reserves and exchange rate indices
- Gross foreign exchange reserves (table): 426.18, 815.9, 1,261.3, 1,691.4, 2,035.9 (in millions of U.S. dollars).
- Price and exchange rate indices (March 2004 = 100) charted including:
  - CPI (Kabul), Nominal exchange rate, Real exchange rate (index series from Dec-02 to Jun-05).
- Note on indices: An increase in the exchange rate indices corresponds to an appreciation. The real exchange rate is estimated using the U.S. and Afghan CPIs.

### Basic macroeconomic aggregates and projections (selected)
- GDP (in millions of U.S. dollars, excluding opium production): 2,463; 4,084; 4,585; 5,971; 7,130; 8,562
- GDP (in millions of Afghanis): 133,987; 182,862; 225,108; 284,504; 355,338; 426,668
- Real GDP growth rate (in percent): ...28.6, 15.7, 8.0, 13.6, 11.2
- GDP per capita (in U.S. dollars): 123; 182; 199; 253; 293; 342
- Opium production (in metric tons): 2003,400; 3,600; 4,200; ......
- Opium value (in millions of U.S. dollars): ...2,540; 2,300; 2,800; ......

### External sector (selected figures)
- Exports of goods (including reexports): 708.9; 1,290.6; 1,893.9; 1,656.1; 1,892.7; 1,959.0 (in millions of U.S. dollars)
- Exports of goods (annual change; in percent): ...82.1, 46.7, -12.6, 14.3, 3.5
- Imports of goods: 1,645.0; 2,508.2; 3,785.9; 3,866.9; 4,560.0; 4,912.5 (in millions of U.S. dollars)
- Imports of goods (annual change; in percent): ...52.5, 50.9, 2.1, 17.9, 7.7
- Current account deficit (excluding grants): -1,363.7; -2,334.7; -2,687.5; -3,196.1; -3,414.7 (in millions of U.S. dollars)
- Current account deficit (including grants; in percent of GDP): ...-3.5, 3.1, 0.7, 0.5, -0.8

### Fiscal aggregates and budget developments (selected)
- Fiscal year 2005/06 runs from March 21, 2005 until March 20, 2006.
- General government recurrent budget (selected lines, in millions of Afghanis):
  - Revenues: ...5,864; 10,168; 12,800; 18,328; 22,224
  - Expenditures: ...15,514; 22,151; 26,716; 32,883; 38,802
  - Donor grants and loans: ...9,430; 10,074; 14,984; 17,643; 16,578
- Domestic government revenue (in percent of GDP): 3.2; 4.5; 4.5; 4.5; 5.2; 5.2
- Operating expenditures (in percent of non-opium GDP): ...8.5; 9.8; 9.4; 9.4; 9.3; 9.1
- Memorandum macro fiscal indicators:
  - Real GDP growth (annual change; in percent) reported in panel: 28.6; 15.7; 7.5; 8.0; 13.6; 13.6; 10.9; 11.2; 10.8; 10.7
  - Nominal GDP growth (annual change; in percent): 33.8; 23.1; 25.8; 26.4; 24.9; 24.9; 16.5; 20.1; 16.3; 16.2

### Savings–investment balances and national accounts (selected percent of GDP)
- GDP at market prices (in millions of U.S. dollars) and percent series available; selected ratios:
  - Gross fixed capital formation (in percent of GDP): 28.3; 35.2; 39.0; 38.8; 39.3; 40.6
  - Net exports of goods and services (in percent of GDP): -33.4; -50.9; -43.7; -45.0; -44.8; -44.8
  - Domestic savings (in percent of GDP): -5.1; -15.7; -4.7; -6.2; -5.5; -4.2
  - Public savings (in percent of GDP): -4.6; -4.4; -4.6; -4.2; -2.9; -3.4
  - Private savings (in percent of GDP): -0.6; -11.3; 0.0; -2.0; -2.6; -0.8
- Sectoral shares of GDP (in percent): Agriculture 49.8; 48.5; 37.4; 37.2; 36.2; 36.1; Industry 20.1; 21.3; 24.1; 24.4; 24.4; 24.8; Services 30.1; 30.2; 38.5; 38.3; 39.4; 39.2

### Core budget detailed items (selected lines, in millions of Afghanis and percent of GDP)
- Core Budget (2002/03–2006/07) highlights:
  - Domestic Revenue (in millions of Afghanis): 5,864; 10,168; 15,380; ...; 18,328; 22,224
  - Tax Revenues (in millions of Afghanis): ---6,262; 8,886; ...; 12,274; 12,250; 17,143 (quarter and projection detail provided)
  - Donor Assistance Grants (to operating budget): 9,430; 10,074; 14,952; 2,137; 1,721; 5,429; 5,697; 14,984; 16,733; 1,819; 17,643; 16,578
  - ARTF entries shown prominently in donor flows: ---8,182; 12,575; 2,137; 1,234; 4,143; 4,804; 12,319; 13,580; 1,819; 13,955; 13,338
  - Total Core budget expenditure (in millions of Afghanis): 15,514; 31,606; 67,214; 6,073; 9,426; 11,066; 12,984; 39,550; 91,417; 10,400; 56,447; 63,427
  - Operating Expenditure (in millions of Afghanis): 15,514; 22,151; 30,332; 5,225; 6,794; 6,186; 8,511; 26,716; 32,883; 6,627; 32,883; 38,802
  - Wages and Salaries (in millions of Afghanis): ---14,660; 20,813; 3,411; 4,834; 4,801; 5,855; 18,902; 20,239; 4,031; 22,263; 24,572
- Operating budget balance (excluding grants, in millions of Afghanis): -9,650; -11,983; 14,952; -2,536; -3,536; -3,206; -4,638; -13,916; -16,733; -1,870; -14,555; -16,578
- Operating budget balance (including grants, in millions of Afghanis): -219; -1,910; 0; -399; -1,815; 2,222; 1,060; 1,068; 0; -513; 3,089; 0
- Core budget balance (in millions of Afghanis): -219; -6,795; 0; -392; -2,471; -764; 111; -3,516; -23,885; 370; -2,124; -6,232

### Budget financing and memorandum items (selected)
- Financing (in millions of Afghanis) and components:
  - External Loans (net): 4,886; 0; 2,351; 6,985; 1,894; 3,525; 14,754; 23,853; 0; 8,219; 8,722
  - Domestic (net): 876; 217; 0; -3,489; -3,905; -4,270; 68; -11,596; 32; -129; -6,095; -2,490
  - Change in foreign currency deposits (net transfers from government deposits with DAB): ---396; 0; -4,404; -4,508; -3,248; 1,703; -10,457; 0; -948; -571; 8; -2,490
  - Change in domestic currency deposits: -502; -179; 0; 91; 560; 3; -1,022; -1,635; -1,139; 328; 19; -377; 0
- Memorandum: External budget expenditure figures shown (incomplete series) including 100,225; 158,396; n.a.; 102,958; 104,679

*Source: Central Statistics Office of Afghanistan; Da Afghanistan Bank; Afghan authorities; Ministry of Finance; and Fund staff estimates and projections.*

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### 3.6 Mine Action---0.00.00.00.00.00.00.00.00.00.00.0

### National Priority Programs and Core Budget
- Program allocation lines (percent of GDP or budget shares as presented):
  - National Priority Programs---2.78.80.10.00.10.10.31.80.10.80.9
  - Education and Vocational Training---0.10.40.00.00.00.00.10.70.00.30.2
  - Health and Nutrition---0.20.40.10.00.10.10.20.40.10.20.5
  - National Emergency Employment Program---1.20.70.00.00.00.00.00.00.00.00.0
  - National Solidarity Program---0.42.50.00.00.00.00.00.00.00.00.0
  - Afghanistan Stabilization Program---0.01.30.00.00.00.00.00.00.00.00.0
  - National Transportation Program---0.63.00.00.00.00.00.00.00.00.00.0
  - National Irrigation Program---0.20.40.00.00.00.00.00.00.00.00.0
  - National Feasibility Studies Program---0.00.00.00.00.00.00.00.00.00.00.0
  - Unclassified---0.00.00.00.00.00.00.00.70.00.30.3

- Budget balances (percent of GDP or as reported series):
  - Operating budget balance (excluding grants): -5.3-5.35.3-0.9-1.2-1.1-1.6-4.9-4.8-0.5-4.1-3.9
  - Operating budget balance (including grants): -0.1-0.80.0-0.1-0.60.80.40.40.00.00.90.0
  - Core budget balance: -0.1-3.00.0-0.1-0.9-0.30.0-1.2-6.80.1-0.6-1.5

- Financing components (percent of GDP or as reported series):
  - Float and adjustment:  5/-0.40.80.00.5-0.21.1-1.30.10.0-0.10.00.0
  - Financing total: 0.52.30.0-0.41.1-0.81.31.16.80.00.61.5
    - External Loans (net): 0.02.20.00.82.50.71.25.26.80.02.32.1
    - Domestic (net): 0.50.10.0-1.2-1.4-1.50.0-4.10.00.0-1.7-0.6
  - Change in foreign currency deposits 6/: ---0.20.00.30.2-0.4-0.6-0.40.0-0.3-0.1-0.6
  - Change on domestic currency deposits 6/: -0.3-0.10.0-1.6-1.6-1.10.6-3.70.00.2-0.10.0
  - Other financing 7/: 0.80.00.00.00.00.00.00.00.00.00.00.0

- Memorandum items:
  - External budget expenditure (selected entries): ---33.163.0------------35.445.0n.a.29.324.6
  - Sources cited: Ministry of Finance and Da Afghanistan Bank (DAB); and Fund staff estimates and projections.
  - Notes provided: 1/ Core Budget estimates. 2/ June 2005 Supplementary budget, which increased the size of the development budget. 3/ Staff projections. 4/ Government program classification. 5/ Variation between the fiscal position recorded at Ministry of Finance and DAB. 6/ Net transfers from government deposits with DAB. 7/ In 2002/03, includes one-off transfers of overflight revenue and customs valuation fees and the sale of telecommunication licenses.

### Monetary Program (Da Afghanistan Bank) — Key aggregates and balances
- Net foreign assets (selected levels, in millions of Afghanis or as reported):
  - Reported series include values: 39,199; 61,612; 61,420; 65,724; 69,991; 78,584; 83,131; 83,732; 91,544; 95,365; 99,498

- Foreign assets (selected levels):
  - Foreign assets: 41,169; 63,582; 63,390; 67,693; 71,961; 80,554; 85,101; 85,701; 93,514; 97,335; 101,468
  - Foreign exchange reserves: 40,665; 62,861; 62,600; 67,073; 71,280; 79,814; 84,301; 85,701; 93,514; 97,335; 101,468
  - Gold 1/: 14,015 (repeated across series)
  - Other (foreign assets): 26,650; 48,846; 48,585; 53,058; 57,265; 65,799; 70,286; 71,686; 79,499; 83,320; 87,453
  - Other foreign assets: 503; 721; 791; 621; 681; 740; 800; 0; 0; 0; 0
  - Foreign liabilities: -1,970 (consistent across series)

- Net domestic assets/claims and deposits:
  - Net domestic assets: -8,075; -20,549; -19,720; -23,477; -23,796; -29,412; -30,810; -29,987; -33,412; -34,148; -35,158
  - Domestic assets (net claims on general government): 6,795; -19,751; -18,628; -19,576; -19,576; -24,846; -25,846; -24,596; -27,584; -27,836; -28,338
  - Domestic currency deposits (selected levels): -1,984; -3,123; -2,000; -2,000; -2,000; -2,500; -3,500; -2,250; -1,750; -2,500; -3,500
  - Foreign currency deposits (selected levels): -6,171; -16,628; -16,628; -17,576; -17,576; -22,346; -22,346; -22,346; -25,834; -25,336; -24,838

- Reserve money and currency in circulation (selected levels, in millions of Afghanis):
  - Reserve money: 31,124; 41,063; 41,701; 42,247; 46,195; 49,173; 52,321; 53,744; 58,133; 61,217; 64,340
  - Currency in circulation 2/: 28,801; 38,763; 39,163; 40,084; 43,820; 46,585; 49,521; 50,678; 54,799; 57,617; 60,640
    - Banknotes and coins issued (level): 29,726; 41,228; 41,762; 42,758; 46,603; 49,476; 52,521; 53,844; 58,133; 61,117; 64,140
    - less cash holdings 2/: 925; 2,465; 2,599; 2,674; 2,783; 2,891; 3,000; 3,167; 3,333; 3,500; 3,500
  - Bank deposits with DAB and capital note holdings: 2,323; 2,300; 2,537; 2,163; 2,375; 2,588; 2,800; 3,067; 3,333; 3,600; 3,700

- Memorandum monetary indicators (selected):
  - Currency in circulation (year-to-date change): 1.0; 3.4; 13.0; 20.2; 27.8; 2.3; 10.7; 16.3; 22.5
  - Currency in circulation (year-on-year change): 0.9; 37.5; 32.6; 35.8; 27.7; 28.3; 27.8; 26.4; 25.1; 23.7; 22.5
  - Currency in circulation (SMP indicative ceiling; in millions of Afghanis): 41,216; 43,820; 46,585; 49,521; 52,093; 54,799 (selected entries)
  - Currency in circulation (level triggering discussions; in millions of Afghanis): 42,271; 46,061; 48,914; 51,997; 53,396; 57,539 (selected entries)
  - Gross international reserves (end-of-period level; in millions of U.S. dollars): 815.9; 1,261.3; 1,256.0; 1,345.8; 1,430.2; 1,601.4; 1,691.4; 1,719.5; 1,876.3; 1,953.0; 2,035.9
  - Consumer prices in Kabul (quarterly change): -0.5; 3.2; 2.4 (selected entries)
  - Consumer prices in Kabul (annual change): 10.2; 16.3; 11.5; 10.0; 8.0 (selected entries)

- Notes and definitions:
  - Sources: Da Afghanistan Bank (DAB); Central Statistics Office; and Fund staff estimates and projections.
  - 1/ Foreign currency amounts converted into Afghani at the program exchange rate (49.84 per U.S. dollar in 2004/05–2005/06). The gold does not include the gold held in the palace vaults and is valued at $400 per ounce in 2004/05–2005/06.
  - 2/ In 2003/04–2004/05, cash holdings only include cash in DAB's Treasury vaults and in DAB's six major provincial branches. In 2005/06–2006/07, they include cash in DAB's Treasury vaults and in all DAB's provincial branches.

### Balance of Payments — Selected aggregates (2002/03–2007/08, in millions of U.S. dollars)
- Trade balance (selected years): -1,217.6; -1,892.0; -2,210.8; -2,667.3; -2,953.5; -2,716.3
- Exports of goods (total): 1,290.6; 1,893.9; 1,656.1; 1,892.7; 1,959.0; 1,746.9
  - Domestic exports: 276.8; 376.8; 471.0; 564.7; 678.2; 793.7
  - Reexports: 1,013.9; 1,517.1; 1,185.1; 1,328.0; 1,280.8; 953.2
- Imports of goods: 2,508.2; 3,785.9; 3,866.9; 4,560.0; 4,912.5; 4,463.2
  - Recorded imports: 1,142.3; 1,688.5; 1,993.1; 2,481.3; 2,913.9; 2,886.6
  - Duty Free: 840.0; 1,000.0; 1,203.3; 1,348.0; 1,323.6; 1,061.7
  - Of which: Commodity food aid: 94.0; 40.9; 107.8; 0.0; 0.0; 0.0
- Services (net): -145.1; -439.3; -480.8; -542.0; -480.3; -392.4
  - Receipts: 50.8; 105.5; 92.5; 120.5; 146.9; 162.6
  - Payments: 195.9; 544.8; 573.3; 662.5; 627.2; 555.0
- 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 2/: 1.1; 8.3; 9.7; 12.1; 13.7; 15.3
- Current transfers (total): 1,221.8; 2,476.7; 2,728.8; 3,234.4; 3,343.3; 2,805.4
  - Public transfers: 1,170.2; 2,421.7; 2,418.7; 2,891.9; 2,999.6; 2,328.0
  - Private transfers 3/: 51.6; 55.0; 310.1; 342.5; 343.7; 477.4
- Current account:
  - Including grants: -141.9; 142.0; 41.3; 38.3; -71.4; -280.2
  - Excluding grants: -1,363.7; -2,334.7; -2,687.5; -3,196.1; -3,414.7; -3,085.7
- Capital and financial account (total): 144.0; 147.7; 345.6; 381.1; 405.0; 430.2
  - Foreign direct investment: 50.0; 57.8; 186.9; 212.3; 236.2; 261.4
  - Public Loans (net disbursement less amortization): 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 2/: 6.2 (repeated)
- Net errors and omissions: -153.2; -89.3; -101.6; 0.00; 0.00; 0.0
- Overall balance (net financing requirement/surplus): 155.3; 379.0; 488.5; 419.4; 333.6; 150.0
- Financing details:
  - Changes in reserve assets — Foreign exchange of the DAB: -101.0; -389.4; -499.1; -430.1; -344.5; -161.0
  - Exceptional financing — Arrears: -54.3; 10.4; 10.6; 10.7; 10.9; 11.0

- Memorandum items:
  - Official foreign exchange reserves (in millions of U.S. dollars): 426; 816; 1,261; 1,691; 2,036; 2,197
  - In months of prospective imports 4/: 1.8; 3.1; 3.9; 4.8; 5.5; 6.5
  - Current account balance (in percent of GDP): Including grants: -3.5; 3.1; 0.7; 0.5; -0.8; -2.8; Excluding grants: -33.4; -50.9; -45.0; -44.8; -39.9; -31.0
  - GDP (millions of U.S. dollars): 4,084; 4,585; 5,971; 7,130; 8,562; 9,951

- Notes and caveats:
  - 1/ Excludes opium exports and, because information is unavailable, flows associated with U.S. Army and most ISAF activities.
  - 2/ Debt service projections are based on recognized obligations, reconciled with creditors. Arrears shown represent an estimate by Fund staff on loans verified with creditors but not being serviced.
  - 3/ Includes foreign transactions recently reported by licensed money changers.
  - 4/ In months of imports of goods and services, excluding imports for reexport.
  - Sources: Afghan authorities; and Fund staff estimates and projections.

### Relations with the Fund — Membership, obligations, and technical assistance
- Membership and quota:
  - Joined July 14, 1955; Article XIV.
  - Quota: SDR 161.90 (100.00 percent)
  - Fund holdings of currency: 161.92 (100.01 percent)
- SDR Department:
  - Net cumulative allocation: 26.70 (100.00 percent)
  - Holdings: 0.18; 0.67 (SDR million)
- Outstanding Purchases and Loans: None
- Financial Arrangements: None

- Projected Obligations to Fund (SDR million):
  - Principal (2005–2009): 0.00; 0.00; 0.00; 0.00; 0.00
  - Charges/Interest (2005–2009): 0.34; 0.70; 0.70; 0.70; 0.70
  - Total (2005–2009): 0.34; 0.70; 0.70; 0.70; 0.70

- Exchange arrangement and monetary operations:
  - Afghanistan is an Article XIV member implementing a liberal exchange system; no exchange restrictions and multiple currency practices are reported.
  - Authorities intend to formalize the liberal regime through new laws and regulations; technical assistance requested from the Fund with a joint LEG/MFD mission envisaged.
  - Afghani floated since at least end-2001; a managed float with no predetermined path has been implemented.
  - As of September 7, 2005, average exchange rate on the Kabul money exchange market: Af 49.28 per $1.
  - Monetary policy instruments in use:
    - Foreign exchange auctions since May 2002 (weekly).
    - Short-term capital note auctions since September 2004 (daily).
    - Foreign exchange auctions opened to commercial banks since June 2005.
    - Reserve requirements started to be implemented in May 2005.

- Article IV and Resident Representatives:
  - Last Article IV consultation discussed by the Executive Board on January 19, 2005; consultations on the standard 12-month cycle.
  - Resident representative timeline: resident representative in Pakistan assisted in 2002; resident representative in Kabul took post August 24, 2002; succession noted June 13, 2005.

- Technical Assistance (2004–05) — Departments and missions (selected):
  - FAD: March 2004 (ongoing) Resident Treasury Expert; March 22–April 3, 2004 Tax policy and administration; April 18–May 2, 2004 Customs administration; May 19–25, 2005 Seminar of reorganization of the MoF.
  - MFD: February 2–6, 2004 Anti-money laundering legislation; March 21–30, 2004 DAB capital adequacy and balance sheet structure; September 2004 (ongoing) Training coordinator; February 2–15, 2005 Implementation of DAB balance sheet reconstruction and capital adequacy recommendations; May 16–25, 2005 Monetary Policy and Financial Markets.
  - LEG: February 2–6, 2004 Anti-money laundering legislation; March 3–21, 2004 Fiscal revenue legislation; January 29–February 12, 2005 Income Tax Law.
  - STA: January 29–March 15, 2004 Multisector statistics; April 19–May 3, 2004 Balance of Payments Statistics; May 13–June 30, 2004 Multisector statistics; May 17–29, 2004 Consumer Price Index; January 15–February 15, 2005 Multisector Statistics; March 23–June 11, 2005 Multisector Statistics; July 20–August 31, 2005 Multisector Statistics.
  - MCD: April 16–20, 2005 Basic Macroeconomic Accounting Relationships and Introduction to Financial Programming.

- Additional notes on assistance and capacity building:
  - Participant in the Middle East Technical Assistance Center (METAC).
  - Resident treasury expert for the Ministry of Finance since March 2004.
  - Resident multisector statistical advisor stationed in Kabul since July 17, 2002; peripatetic STA missions resumed January/February 2005 with multiple missions scheduled.
  - Sweden-funded training support to DAB, including appointment of a long-term training advisor in September 2004 and financing of a monetary policy peripatetic advisor for December 2004–December 2005.

### Relations with the World Bank — Program financing and engagement (as of September 12, 2005)
- Strategy and programming:
  - Second Transitional Support Strategy (TSS) presented March 2003; update to be aligned with government National Development Strategy; Interim Strategy Note planned for early 2006.

- IDA grants/credits and project approvals (selected by fiscal year):
  - FY 2002: four projects prepared and negotiated to utilize IDA grant funds totaling $100 million.
  - FY 2003: first IDA credit of $108 million (Emergency Transport Project) approved; additional three projects—Emergency Health Sector Rehabilitation ($59.6 million), Emergency Public Administration II ($8.4 million), and National Emergency Employment II ($39.2 million)—bringing total allocation for the year to $215 million.
  - FY 2004: five IDA credits/grants negotiated totaling $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: six projects and two supplementals approved totaling $285 million: Programmatic Support for Institution Building ($80 million); Kabul Urban Reconstruction Project ($25 million); Investment Guarantee Facility ($5 million, together with MIGA); Education Quality Improvement Program ($35 million); Public Administration Capacity Building ($27 million); Strengthening Higher Education ($40 million); supplemental financing for the Emergency Transport Project ($45 million) and the National Solidarity Program ($28 million).

- Afghanistan Reconstruction Trust Fund (ARTF):
  - ARTF became effective in May 2002 and funds recurrent government costs.
  - 2002/03: mobilized $185 million and disbursed $65 million.
  - 2003/04: paid-in contributions $286 million; disbursements $254 million.
  - 2004/05: paid-in contributions $380 million; disbursements $292 million.
  - Pledges for 2005/06: $462 million, with $154 million paid in (as of August 22, 2005).
  - ARTF increasing financing of investments and has potential to support tighter donor coordination and simplified processes.

- Advisory and analytical engagement:
  - World Bank advisory services include civil service reform, urban development and land management, education policy reform, labor market and pensions, oil/gas infrastructure development, and regional trade work.
  - A Gender Assessment due to be released publicly shortly.
  - Initiated a major Public Finance Management (PFM) Review, incorporating public expenditure and fiduciary aspects; Fund staff contributing analysis of domestic revenue prospects.
  - Use of Post Conflict Fund and Japan Social Development Fund resources for on-the-ground support.

*Source: _cr05371 - 3.6 Mine Action---0.00.00.00.00.00.00.00.00.00.00.0 (IMF staff report and appended tables and notes).*

### 7. The World Bank’s program is growing quickly and has an active IDA portfolio of

### 7. The World Bank’s program is growing quickly and has an active IDA portfolio of 

### World Bank program and IDA portfolio
- Active IDA portfolio: 18 investments as of August 2005 and two supplementals (one project has closed).
- Total commitments since 2001: $893 million, of which $457 million in grants.
- Projects under preparation for FY05 include a second budget support operation.
- Total commitments for FY 2005 expected to reach $267 million, entirely in grants.

### Staff-Monitored Program (SMP) status and request for extension
- SMP inception and updates: agreed in March 2004 and updated on September 6, 2004, December 29, 2004, February 3, 2005, and May 18, 2005.
- Fifth review: discussions held for two weeks starting August 1, 2005.
- Performance through end-June 2005: all end-June 2005 quantitative targets and structural benchmarks met.
- Request: additional 12-month extension of the SMP through September 2006.
- New understandings: quantitative targets and structural benchmarks for end-September 2005, end-December 2005, end-March 2006, end-June 2006, and end-September 2006.
- Publication consent: Government consents to publication of the letter, the attached MEFP, the technical memorandum of understanding, and accompanying Executive Board documents on the IMF’s website.

### Macroeconomic developments (first quarter of 2005/06 and 2004/05 outcomes)
- Real GDP growth 2004/05: revised from 7.5 to 8.0 percent.
- First-quarter 2005/06 drivers: rebound in agriculture (winter and spring precipitation), continued strong growth in manufacturing and services.
- Kabul year-on-year inflation: declined to 11.5 percent at end-June from 16.3 percent at end-2004/05.
  - Rents: increased by 8.1 percent during the first quarter compared with 41.2 percent a year earlier.
  - Excluding rents and petroleum products prices: year-on-year inflation declined from 11.3 percent at end-2004/05 to 9.0 percent at end-June.
- Opium production: expected to decline in 2005 due to intensified anti-narcotics efforts and low farm gate prices; yields rebound (yields had fallen by 29 percent in 2004).
- Domestic revenues (provisional): Af 4,757 million in the first quarter of 2005/06, slightly above the SMP indicative target Af 4,629 million.
  - Increase: over 75 percent compared with the same period last year.
  - Drivers: customs revenue increased by around 40 percent; delayed transfer of about Af 800 million in overflight charges; decline in domestic tax revenues partly offset.
- Core budget operating spending: Af 6.6 billion during the first quarter versus an annual budget estimate of Af 32.9 billion.
  - Wages and salaries: around 60 percent of operating expenditures.
- Core budget development spending: budgeted at 16.6 percent of GDP in 2005/06 (up from an outturn of 4.5 percent in 2004/05 and a preliminary budget estimate of 13.2 percent of GDP).
  - First quarter development spending: Af 3.8 billion, compared with an annual budget estimate of Af 58.5 billion.
- External supplementary budget: broadly unchanged at 45 percent of GDP in 2005/06, compared with estimated spending of 35 percent of GDP in 2004/05.
  - Part unfunded: equivalent of 21.3 percent of GDP.

### Public financial management and budget processes
- Public Financial Management Law: promulgated in June (an end-June benchmark).
  - Features: clear and transparent budget framework; stricter guidelines for budget formulation, execution and financing; consistent framework for internal control and internal and external audit.
- Fiscal transparency measures: Ministry of Finance began publishing monthly statements of fiscal performance for the core budget; intends to produce a regular quarterly fiscal bulletin.
- Integration: plan approved to integrate the former Accounting Department of the Ministry of Finance in the Treasury; integration will take several months pending approval by the Independent Administrative Reform and Civil Service Commission.
- Midyear review (MYR): scheduled for September/October; will consider budgetary adjustments, accelerate program delivery, and remove or reduce allocations to nonperforming programs; may include additional donor funds as commitments firm.

### Monetary sector, reserves, and exchange rate
- Currency in circulation: increased by 3.4 percent during the first quarter of 2005/06, to Af 40.1 billion at end-June (below the SMP first quarter ceiling Af 41.2 billion).
- International reserves: increased to $1.3 billion (equivalent to 3.8 months of 2006/07 imports).
- Overnight capital note interest rate: remained low at 1–2 percent.
- 30-day note rate: fluctuated between 5 and 6 percent during the first quarter.
  - Auctions: 30-day note auctions no longer systematically undersubscribed due to participation of some private banks.
- Nominal exchange rate: depreciated by 3 percent against the U.S. dollar during the first quarter of 2005/06.
- Real exchange rate: remained broadly unchanged as domestic prices increased slightly faster than foreign prices.

### Central bank modernization and data improvements
- DAB (Da Afghanistan Bank) actions:
  - Published the financial statements of the 2003/04 external audit.
  - Implemented recommendations of IMF technical assistance on monetary policy and financial markets.
  - Improved foreign exchange auction procedures: moved to standard auction system (confidential bids, no renegotiation, allowing multiple bids); allowed commercial banks to participate along with money-changers.
  - Established a monetary policy committee for daily operational issues.
  - Initiated transfer of DAB’s commercial activities in city branches in Kabul and in provinces where at least one commercial bank operates.
  - Conducted a preliminary assessment of gold and silver held in the palace vaults (with a local expert).
- Balance of payments data improvements:
  - Implementing recommendations of the May 2005 IMF STA technical assistance mission.
  - Harmonized sources and assumptions on trade flows; made adjustments for illegal trade, private grants, and the international investment position.
  - Improving collection of data on financial accounts via surveys and questionnaires.

### Outlook and policy intentions for remainder of 2005/06 and first half of 2006/07
- Economic growth projections:
  - Real GDP expected to grow by 13.6 percent in 2005/06.
  - Real GDP projected to grow by 11.2 percent in 2006/07.
- Inflation projections:
  - Expected to decline to 10 percent year-on-year at end-2005/06.
  - Expected 8 percent year-on-year at end 2006/07.
- Anti-narcotics strategy: continue multi-pronged approach (eradication, interdiction, alternative livelihoods); Ministry of Counter-Narcotics coordinates policy efforts.
- Policy focus:
  - Maintain macroeconomic stability.
  - Strengthen capacity and improve statistical base.
  - Increase revenue collection through sustained tax and customs administration reforms.
  - Improve spending efficiency and prioritization consistent with the NDS and the Millennium Development Goals.
- National Development Strategy (NDS) and Medium-Term Fiscal Framework (MTFF):
  - MTFF (an end-December benchmark) to present objectives, integrated macroeconomic and fiscal targets, assumptions and projections over next three to five years, including financing requirements.
  - Aim to encourage donors to channel an increasing proportion of assistance through the core budget and improve predictability and transparency.

*Source: Update to the Memorandum of Economic and Financial Policies, Fifth Review Under the Staff-Monitored Program and Request for Extension, 2004/05–2006/07 (August 16, 2005).*

### 22.      We envisage a wage adjustment as part of the MYR, which will be consistent

### _cr05371 - 22.      We envisage a wage adjustment as part of the MYR, which will be consistent

### Fiscal policy and public sector wages
- A nominal wage increase for non-uniformed public servants is becoming unavoidable after no general increases since November 2003.
- Any increase in the general pay scales for non-uniformed public servants at the time of the MYR will be restricted to no more than Af 600 million, which "should be more than offset by additional domestic revenues."
- Wage-related costs are expected to rise considerably over the medium term due to ongoing public administration reforms and possibly additional security-related costs.
- Policy guidance: carefully quantify and control any pay award and discuss proposals with main donors who finance a significant share of the budget.

### Revenue mobilization (priority)
- Current revenue-to-GDP ratio is described as "one of the lowest in the world"; increasing domestic revenues is the highest priority.
- SMP revenue projection for 2005/06: 5.2 percent of GDP (noted as greater than the budget projection and achievable given expected receipt of overflight payments and implementation of customs and tax administration reforms).
- SMP revenue target: Af 18,328 million; budget target: Af 16,150 million.
- Immediate reform focus: strengthen the Large Taxpayer Unit; establish tax enforcement powers by end-September 2005; improve tax and customs administration and infrastructure.
- Consideration of introducing excise taxes in the near future.

### Tax and customs administration, exemptions, and tax structure review
- Legislative changes provide a foundation for modern tax and customs administrations; committed to reducing complexity and streamlining procedures to reduce compliance costs.
- Will conduct a review of the tax structure during the year, in consultation with the private sector, to abolish “nuisance” taxes and illicit charges.
- Emphasis on properly controlling duty and tax exemptions, given high value of donor imports that are duty-exempt and the risk of proliferation of unjustified exemptions.
- Will strengthen implementation of the exemption monitoring system.

### Fiscal reporting and provincial treasuries (Mustofiats)
- Fiscal reporting and reconciliation of fiscal and banking data have improved markedly over the last year; efforts will be maintained.
- Major challenge: reform of the provincial treasuries (Mustofiats) including new regulations, procedures, systems based on the new public financial management law, and institutional reforms.
- Planned reorganization of Mustofiats along functional lines reporting to the Treasury and General Presidency of Revenue.
- With donor support, implementation of the Mustofiats reform plan will continue over the coming year.

### Monetary policy and exchange rate
- Q1 price, exchange rate, and monetary developments broadly in line with SMP projections; monetary policy to follow the 2005/06 monetary program agreed at the third review.
- Relative slow growth of currency in circulation during Q1 provides room to accommodate potential sharp increase in money demand in Q2.
- Program provides for further tightening of monetary stance during the remainder of the year, consistent with DAB’s primary objective to bring inflation under 10 percent.
- Exchange rate: will continue to be market-determined.
- International reserves expected to increase to about $1.7 billion at end-2005/06, equivalent to 4.8 months of 2006/07 imports.
- Monetary program will remain flexible to account for unanticipated changes in demand for currency (e.g., increased Afghanization or financial sector developments).

### Da Afghanistan Bank (DAB) modernization and money market instruments
- Restructure DAB’s balance sheet by:
  - Finalizing, by end-September 2005, transfer of DAB’s commercial accounts in city branches in Kabul and provinces where at least one fully-licensed commercial bank operates.
  - Processing gold held in palace vaults into a form that qualifies as a reserve asset, and transferring, by end-September 2006, any monetary gold held in Afghanistan to an international gold center.
- Introduce by end-December 2005, with IMF technical assistance, an overnight collateralized credit facility against capital notes and allow foreign currency auction participants to sell as well as buy U.S. dollars.
- If demand for capital notes (notably from private banks) continues to increase, consider introducing longer-maturity notes.
- Publish capital note interest rates by end-December 2005.

### Banking sector reforms and state-owned banks
- Tackle administrative and legal impediments to banking sector development; work with donors to strengthen regulatory and institutional framework.
- Submit new laws and amendments to parliament if necessary.
- Eliminate, or at least substantially reduce, registration fees for deeds to bring them in line with international standards (structural benchmark: end-December 2005).
- Liquidation and restructuring:
  - Ministry of Finance to issue a statement by end-September 2005 formalizing decision to liquidate three former state-owned banks; deposits with former banks to be transferred to licensed banks or reimbursed by this date.
  - Appoint liquidators and start implementing liquidation of unlicensed banks by end-December 2005.
  - Assign new management teams, or engage management advisors, in the three licensed state-owned banks by end-December 2005 to implement long-term strategic plans (plans due by end-September 2005).
  - DAB to elaborate new conditions and corrective actions for licensed state-owned banks based on performance reviews.

### External sector outlook and debt management
- Current account deficit excluding grants projected to reach 44.8 percent of GDP in 2005/06, down from 45.0 percent of GDP in 2004/05.
- Financing will continue to rely heavily on grant financing despite expected increases in foreign direct investment and official borrowing.
- Including grants, current account projected to record a surplus equivalent to 0.5 percent of GDP.
- Commitments:
  - Improve collection and compilation of balance of payments data; strengthen evaluation processes for non-recorded trade flows based on surveys (Herat, Nangahar, Kandahar, Balkh).
  - Ensure extended coverage and consistency of data on grants; DAB to coordinate with government agencies and donors; DAB to work with banks for more reliable financial data flows.
  - External debt strategy: remain cautious, rely on grants and highly concessional loans; press for continued support from multilateral and bilateral creditors and donors; continue to seek generous debt relief from existing bilateral creditors.
  - Pursue completion of the external debt survey by end-September 2005; requested Paris Club Secretariat assistance for reconciliation with Paris Club creditors; ongoing contacts with non-Paris Club creditors.
  - Preparatory work on an external debt management strategy expected to be adopted by Cabinet by end-September 2005.

### Structural reforms and SOE divestment
- With IMF and donor assistance, pursue structural reform agenda including program conditionality.
- Adopt by end-September 2005 a comprehensive restructuring plan and classification of state-owned enterprises (SOEs) by planned restructuring method.
- Ensure retrenchment costs from divesting SOE interests are fiscally sustainable.
- Refrain from creating any new SOE, bank, or financial institution.
- Commit to open and transparent divestment processes to maximize state income from sale of state assets.

### Poverty Reduction Strategy (NDS)
- Continue work on the NDS to complete it by end-December 2005.
- Institutional framework: oversight committee (ministers of economy, finance, foreign affairs, rural rehabilitation, and the President’s economic adviser); a working group for technical work; an External Advisory Group including UN agencies, international financial institutions, key donors, and civil society.
- Extensive consultation process with donors, ministries, and civil society; will improve social statistical database and understanding of poverty determinants; focus on macroeconomic implications of priorities.

### Statistical development
- Strong statistical database is a pillar of the SMP; guided by the September 2004 statistical master plan.
- Priority: establish adequate legal framework for economic data collection, processing, dissemination.
- Working on a statistical law expected to be adopted by Cabinet by end-September 2005.
- Seeking donor support to restructure the Central Statistics Office, reestablish independence, and fund the statistical master plan action plan.
- Launch three key surveys in September 2005 (launched later than initially planned due to technical difficulties).

### Technical assistance, NGOs, and other issues
- Comprehensive review of donor technical assistance progressing; aiming to address distortions, establish priorities, and redeploy TA resources.
- Gratitude to IMF for TA to date; request additional IMF assistance to review exchange rate regulations and improve monetary statistics.
- NGO law adopted in July 2005 after consultations; NGOs expected to re-register before end-December 2005.
- NGO law features: construction delivered primarily by private sector where feasible; NGOs must report activities quarterly to the Ministry of Economy to improve information on social service coverage.

### Program monitoring and governance of the SMP
- Monitoring will follow definitions, data sources, and frequency in the Technical Memorandum of Understanding (TMU); quarterly quantitative indicators through end-September 2006 are in Table 1; structural benchmarks in Table 2.
- Government will provide IMF staff all core data, reconciled and timely, as specified in the TMU; IMF staff to be notified prior to policy actions affecting the program.
- Technical Committee of Coordination (TCC) will continue to monitor SMP execution and ensure timely transmission of core data to the IMF; TCC encouraged to consolidate analytical capacity and support macroeconomic component of the NDS.

*Source: _cr05371 - 22.      We envisage a wage adjustment as part of the MYR, which will be consistent*

### 1.      This memorandum sets out the understandings between the Afghan authorities and

### _cr05371 - 1.      This memorandum sets out the understandings between the Afghan authorities and

### I. QUANTITATIVE INDICATIVE TARGETS
- Monitoring basis: assessment of observance by the Government of Afghanistan of quantitative indicators and structural benchmarks at specified dates.
- Quantitative indicators (specified in Table 1 of the MEFP and updated MEFPs attached to letters of March 23, 2004, September 6, 2004, December 29, 2004, February 3, 2005, May 18, 2005, and August 16, 2005):
  - a ceiling on currency in circulation of Da Afghanistan Bank (DAB);
  - a ceiling on net claims of the banking system on the central government;
  - a floor for the build-up of gross international reserves of DAB;
  - a floor on fiscal revenue of the central government;
  - a ceiling on new medium- and long-term nonconcessional external loans contracted or guaranteed by the government;
  - a ceiling on new nonconcessional debt contracted or guaranteed by the government with an original maturity of less than one year.
- SMP coverage notes:
  - The SMP initially covered the period March 2004–March 2005.
  - At the request of the authorities, it was extended for six months through September 2005 (IMF Country Report No. 05/128).
  - At the time of the fifth review, the authorities requested an additional 12-month extension through September 2006.

### II. DEFINITIONS
- A. Program Exchange Rate
  - Program exchange rate: average of the U.S. dollar/Afghani buy and sell cash rates, as reported by the DAB as of February 29, 2004 (49.84 Afghanis per U.S. dollar).
  - Use: convert into Afghanis the U.S. dollar value of all foreign assets and liabilities denominated in U.S. dollars.
  - Conversion for SDRs and other foreign currencies: into U.S. dollars at respective exchange rates prevailing as of February 29, 2004, as published in the International Financial Statistics (IFS).
- B. Currency in Circulation
  - Defined as total currency (new Afghani) issued by DAB.
  - Excludes currency held in the presidential palace vault, in DAB main vault, and in the vaults of DAB’s provincial branches.
  - Includes currency in the vaults of DAB’s district branches.
- C. Net Claims of the Banking System on the Government
  - Defined as the difference between the banking system’s claims on the government and the deposits of the government with the banking system.
- D. Gross International Reserves
  - Gross usable reserves of the DAB are reserve assets (as defined in the BOP manual) that are controlled by the DAB, immediately and unconditionally available to the DAB for meeting balance of payments needs, and not earmarked by the DAB for specific payments.
  - Components: balances on accounts maintained with overseas correspondent banks, foreign exchange banknotes in DAB vaults, monetary gold, SDRs, and Afghanistan’s reserve position in the IMF.
- E. Nonconcessional Public Sector or Publicly Guaranteed External Debt
  - “Government” for program purposes includes the central government, and government departments and official agencies which do not seek profit and whose budgets are issued independent of the annual operational or development budgets.
  - Limits (Table 1 of MEFP) apply to contracting or guaranteeing of new, nonconcessional external debt by the government.
  - Applicability:
    - Applies to new, nonconcessional external debt with original maturity of more than one year; includes commitments contracted or guaranteed for which value has not been received.
    - Excludes leases of real property by Afghan embassies or other foreign representations.
    - External debts expressed in U.S. dollar terms; debts in other currencies converted at market rates prevailing on February 29, 2004, as published in IFS.
    - Also applies to new, nonconcessional external debt with original maturity of one year or less; term “debt” as set forth in point No. 9 of the Guidelines on Performance Criteria with Respect to Foreign Debt in Fund Arrangements (adopted August 24, 2000).
    - Excludes normal import-related credits.
  - Guarantees: arise from any explicit legal obligation of the government or DAB or any other agency acting on behalf of the government to service such a debt in the event of nonpayment by the recipient (payments in cash or in kind), or indirectly through any other obligation to cover a shortfall incurred by the loan recipient.
  - Concessionality assessment:
    - Based on currency-specific discount rates using OECD commercial interest reference rates (CIRRs).
    - For loans with original maturity of at least 15 years: use average of CIRRs over the last 10 years as discount rate.
    - For loans with original maturities of less than 15 years: use average of CIRRs of the preceding six-month period.
    - Margins to be added to the ten-year and six-month averages of CIRRs: 0.75 percent for repayment periods of less than 15 years; 1 percent for 15–19 years; 1.15 percent for 20–30 years; and 1.25 percent for over 29 years.
    - Under this definition, only loans with grant element equivalent to 60 percent or more are excluded from the debt limits.
    - Debt limits do not apply to loans contracted for debt rescheduling or refinancing.
- F. Fiscal Revenues of the Central Government
  - Include revenues collected in Kabul and revenues collected by provincial offices and transferred to the government account at DAB.
  - Included revenue sources: corporate income tax, personal income tax, business receipts tax, fixed withholding taxes on imports and exports (creditable against income tax), presumptive taxes in lieu of income tax, import duties and other charges and fees (Chamber of Commerce import/export valuation charge, Red Crescent fee, permit fees from Ministry of Commerce, fees and charges from Ministry of Communication, and over flight fees collected by Ministry of Civil Aviation).
  - Exclusions: revenue from privatizations or other sale of state assets, grants, and other direct transfers.
  - Specific temporal exclusions:
    - Excludes provincial revenues accrued between March 20, 2004 and March 20, 2005 but where funds are not transferred to government’s DAB accounts by April 20, 2005.
    - Excludes revenue accrued before February 21, 2004, even if funds are transferred to government accounts between March 20, 2004 and March 20, 2005.
  - All revenue must be supported by relevant documentation.
- G. Structural Benchmarks (specified in Table 2 of the MEFP and updated MEFPs attached to letters of March 23, 2004, September 6, 2004, December 29, 2004, February 3, 2005, May 18, 2005, and August 16, 2005)
  - Consolidation of all line ministry accounts into the Treasury Single Account (TSA). All revenue collected by ministries must be deposited into the main government account (including sub-accounts); no ministry may have its own bank account without explicit written consent of the Minister of Finance.
  - Regular transfer of provincial moustoufiat balances into the TSA at DAB headquarters:
    - Transfers where possible on a weekly basis, minimum monthly.
    - Provinces may not make expenditures from their revenue accounts.
    - For each branch, the transferred amount must be credited to the TSA within 30 days of the end of each solar month.
  - Development of consolidated fiscal accounts including provinces and operating and development budgets:
    - Operating budget: prepared monthly with a six-week lag, using functional, ministerial, and economic classification.
    - Development budget: prepared quarterly with a six-week lag, using classification structure under the National Development Framework.
    - Development expenditures implemented directly by donors included if data are available.
  - Extension of the consumer price index survey to main cities beyond Kabul, including at least 5 other cities.
  - Development of a monetary survey, including balance sheets of commercial banks licensed under the new banking law.
  - Adoption of presidential decree precluding tax exemptions and concessions; enact legal measures to ensure statutory tax rules prevail over nonstatutory concessions in agreements.
  - Publish (by the Ministry of Finance) fiscal data on at least a quarterly basis; whenever possible include monthly revenue and expenditures (center and by individual province) covered under the core budget, as well as financing; structure of revenue and expenditure data should match approved budget classification and compare outturns against the budget; include principal and interest payments on external government and government-guaranteed debt, and disbursement of external loans; publication can be electronic or paper.
  - Complete an assessment of the financial position of SOEs and adopt (by Cabinet):
    - (i) the list classifying SOEs according to proposed economic restructuring method; and
    - (ii) the Economic Restructuring Plan.
    - For nonfinancial SOEs with poor record keeping and scarce financial information: experts to make an informed judgment through in-site visits and discussions; if sufficient financial information becomes available, a full assessment will be conducted prior to restructuring.
    - The Economic Restructuring Plan to reflect steps and tasks of restructuring, adopted by Ministries in charge of SOEs and presented to Cabinet.
  - Transfer to other entities all DAB commercial activities inconsistent with central bank and commercial bank laws, at minimum including all commercial activities performed by DAB’s main office.
    - Transfer of commercial accounts to comprise all accounts which are not: frozen; non-cash; or requiring audit and/or legal determination.
  - Improve government payments by initiating:
    - (i) direct electronic payments to vendor bank accounts; and
    - (ii) a pilot for direct salary payments for the employees of three ministries.
    - Note: benchmark amended to read as above.
  - Reconcile government fiscal and banking records:
    - Reconciliation to cover all core budget operations (recorded with AFMIS) and associated banking data from the beginning of 2005/06.
    - Undertaken at least monthly.
    - A reconciliation that leaves unexplained differences up to 5 percent of total core expenditures between banking and accounting records will not meet the benchmark.
  - Develop a Medium-Term Fiscal Framework (MTFF) including:
    - (i) a fiscal table with 3-year projections of revenues, expenditures, fiscal deficit and sources of financing;
    - (ii) a concise description of the policy actions sustaining the projections, particularly for revenues, the wage bill, the profile of actual development expenditures (not just commitments) and the fiscal deficit(s), consistent with international definitions.
    - MTFF to link allocations to government strategic priorities while ensuring overall fiscal discipline; detailed sector plans or costings not required.

### III. PROVISION OF INFORMATION TO THE FUND STAFF
- General: Government to provide Division A of the Middle Eastern and Central Asia Department (MCD), through the IMF Resident Representative in Afghanistan, the information specified and summarized in reporting tables provided by Fund staff to the Technical Committee.
- Quarterly quantitative targets: actual outcomes provided within six weeks following the end of the quarter; many indicators have specified higher frequencies.
- A. Data (reporting frequencies and start dates)
  - DAB gross foreign exchange reserves (weekly) from March 20, 2004. Report no longer than 2 weeks after the end of the week.
  - Monetary statistics, including exchange rate data (daily), government accounts with the DAB and currency in circulation (monthly) from March 20, 2004. From September 21, 2004, monetary statistics will also include a monetary survey (monthly) including balance sheets of DAB and a balance sheet of the commercial banks. Report no longer than 3 weeks after the end of the month.
  - Foreign trade statistics (imports, exports, reexports) (quarterly) from March 20, 2004. Report no longer than 8 weeks after the end of the quarter.
  - Operational budget operations and their financing: reported monthly no more than 4 weeks after the end of the month.
  - Detailed data on foreign grants and loans disbursed, contracted, or guaranteed by the central government; foreign debt amortization and interest payments, including new external arrears (if any); and total outstanding amount of arrears (quarterly) from March 20, 2004.
  - List of short, medium, and long-term government or government-guaranteed external loans contracted during each quarter; identify for each loan: creditor, borrower, amount and currency, maturity and grace period, and interest rate arrangements (quarterly) from March 20, 2004.
  - National accounts data (quarterly) from March 20, 2004. Report no longer than 8 weeks after the end of the quarter.
  - Consumer price index (CPI) for the city of Kabul (monthly) from March 20, 2004; starting in October 2004, CPI covering 5 major cities (monthly). Report no longer than 4 weeks after the end of the month.
  - Core development budget operations and their financing: reported quarterly no more than 6 weeks after the end of the quarter. Data should be at least quarterly, but whenever possible include monthly expenditures covered under the core budget and financing. Structure of financing (grants and loans) and expenditure data should match operating budget classification and the program classification used by the budget. Data should compare outturns against the budget.
- B. Structural Reforms
  - Government to prepare and send to the IMF reports, with appropriate documentation, indicating progress achieved, explaining deviations relative to initial planning, and specifying expected revised completion date.
- C. State-Owned Banks
  - Authorities to provide staff with relevant documents and information on proceedings associated with relicensing and/or closure and resolution of commercial banks.
- D. Other Information
  - Government to send other details on major economic and social measures expected to impact program sequencing (changes in legislation, regulations, or other pertinent documents) in a timely manner to IMF staff for consultation or information.
- E. Program Monitoring
  - Working meetings planned at least bi-weekly with participation of representatives of the MoF, the DAB, the TCC, and the IMF resident representative.

*Attachment III of the Staff-Monitored Program memorandum detailing monitoring arrangements and definitions.*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2005/_cr05371.pdf_