## _cr16120

## Source details

**Canonical URL:** [_cr16120](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2016/_cr16120.pdf)

## Other formats

- [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2016/_cr16120.pdf.md)
- [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2016/_cr16120.pdf.json)

---

### CONTEXT
- Headline pressures: deepening uncertainty about the political transition following the 2014 presidential election; corruption and weak governance; weakening security environment; continued drag from the drawdown of international troops.
- Political and donor events:
  - Quadrilateral peace talks (Afghanistan, China, Pakistan, and the U.S.) launched but without tangible results; insurgent attacks continued.
  - National unity government formed after the 2014 election; parliamentary elections scheduled for October (some observers expect a delay).
  - Two major donor conferences: July (Warsaw, security assistance focus) and October (Brussels, development assistance focus).
- IMF engagement: In May 2015, IMF management approved a Staff‑Monitored Program (SMP) aimed at addressing fiscal and banking vulnerabilities, preserving macroeconomic stability, improving prospects for inclusive growth, and building a track record for a future IMF financial arrangement.

### ECONOMIC DEVELOPMENTS — RECENT FINDINGS
- Growth and inflation:
  - GDP growth in 2015 is estimated at about 1.5 percent.
  - Inflation: turned negative in March 2015; recently returned to positive territory mainly due to the Afghani’s earlier depreciation.
- Monetary and credit:
  - Reserve and broad money grew by only 3 percent in 2015.
  - Private sector credit growth remained negative through most of 2015.
- 2015 overall budget outcome:
  - Operating deficit before grants was 2.3 percentage points below the target of 12 percent of GDP.
  - Overall budget including grants was in deficit of 1.4 percent of GDP (rather than in balance as projected).
  - Deficit financed through drawdown of the Treasury’s nondiscretionary cash balances.
  - Year-end discretionary cash balances were well above the indicative floor of Af5 billion.
- Domestic revenues (2015 outturn):
  - Total Revenue: 122.3 (billions of Afghanis)
  - Base Revenue: 108.3 (billions of Afghanis)
  - 2015 Revenue Measures: 5.2 (billions of Afghanis)
  - Tax and Nontax Arrears/One-offs: 8.8 (billions of Afghanis)
  - Total Revenue as percent of GDP: 10.4
  - Base Revenue as percent of GDP: 9.2
  - Tax Revenue as percent of GDP: 7.6
- External sector and reserves:
  - Trade deficit remained large, nearly 40 percent of GDP.
  - Current account recorded a surplus of 4.5 percent of GDP, financed by official grants (note: official statistics record some grants in the capital account leading to a reported current account deficit in official statistics).
  - Afghani depreciation: year‑on‑year depreciation of the Afghani by 17 percent in December 2015.
  - Da Afghanistan Bank (DAB) supplied foreign exchange to mitigate pressures and maintained a reserve buffer of more than 8 months of imports.
- Financial sector health:
  - Nonperforming loans increased from 7.8 percent of gross loans in December 2014 to 12.3 percent in December 2015.
  - Profitability under pressure; negative returns on assets and equity during most of 2015.
  - Liquid assets constituted 71 percent of total assets.
  - Regulatory capital to risk-weighted assets ratio of 28 percent (comparative figures: 13 percent in India and 17 percent in Pakistan).
- Regional/international integration:
  - Afghanistan's WTO application approved in December (accession could occur in the summer).
  - Construction of TAPI began in December; expected operational in 2019, resulting in some US$400 million of annual transit fees for Afghanistan (financing package incomplete).
  - CASA-1000 agreements being finalized; World Bank to cover Afghanistan’s financing needs (US$316 million) via a grant.

### OUTLOOK AND RISKS — PROJECTIONS AND ASSUMPTIONS
- Growth and inflation projections:
  - Growth projection for 2016 revised down to 2 percent.
  - Medium-term growth projected to rise to 4 percent by 2019.
  - Inflation projected to average 3 percent in 2016 and then to 6 percent over the medium term.
- External flows and reserves:
  - Grant projections for 2016 revised up partly reflecting delayed disbursements from 2015.
  - Current account projected to turn into deficit over time as official transfers decline and growth picks up, while international reserves remain at comfortable levels.
- Revenue and expenditure assumptions:
  - Baseline no longer assumes VAT introduction or rapid natural resource sector development; revenue improvements stem from strengthened enforcement and compliance and CASA transit fees from 2018 onwards.
  - Staff assumes an increase of almost 1 percent of GDP in development spending in 2016 with no further pick-up afterward.
  - Slower-than-previously-projected pick-up in operating expenditures due to more gradual transfer to the budget of donor-funded off-budget security spending.
  - Total on- and off-budget donor aid assumed to remain broadly unchanged in percent of GDP over the medium term, pending Warsaw and Brussels conferences.
- Risks:
  - Tilted to the downside: worsening security, aid shortfalls, or accelerated migrant outflows could re-emerge exchange rate pressures, decelerate growth, and increase unemployment.
  - Upside scenarios: a lasting political agreement with insurgents and increased regional integration.

### POLICY-RELEVANT INSTITUTIONAL AND SAFEGUARD ISSUES
- DAB safeguards and governance:
  - Most recent safeguards assessment finalized in 2011 (in context of Kabul Bank fraud).
  - Recommendation on recapitalization of DAB through a government promissory note implemented.
  - DAB publishes Kabul Bank’s annual financial statements audited by an international audit firm.
  - Controls improved in some safeguards areas; capacity constraints remain.
  - Amendment of the DAB law remains a challenge; recommendation concerning DAB’s legal structure outstanding.

### PROGRAM PERFORMANCE — SMP IMPLEMENTATION AND STRUCTURAL BENCHMARKS
- Overall assessment: Program performance satisfactory; overall performance under the SMP deemed satisfactory given challenging circumstances.
- Quantitative targets: All end‑December quantitative targets met after adjustments for net credit to the government (upward) and net international reserves (downward).
- Structural benchmarks (selection):
  - Met (1st Review): Hire independent external audit for bad debt recoveries (other vulnerable bank); Promulgate the banking law; Implement revenue measures proposed in the 2015 budget; Implement reform plan and re‑start sale of NKB.
  - Not Met (1st Review) but completed later: Revised Regulation under Article 7 of the AML Law on currency reporting at the border; Revise banking regulation on asset classification and provisioning (requirements completed by end‑December).
  - Met (2nd Review): Afghanistan Revenue Department implemented a data‑driven risk‑based audit case selection process; Revise banking regulation on related party lending (approved by DAB Supreme Council on December 28; to come into full effect on October 1, 2016 and January 1, 2017, respectively).
- Revenue administration progress:
  - Risk Analysis Committees established in large, medium, and small tax‑payer offices in the second half of 2015.
  - Centralized Risk Based Compliance Analysis Unit approved in September 2015 and expected to be functional by May 2016.
  - Tax Audit Manual updated in December 2015.
  - Audit performance indicators showed appreciable improvement in 2015 compared to 2014.
- Related party lending note:
  - Part of the second benchmark specifying a related party aggregate exposure limit was misspecified because it contradicted the banking law; other parts were met and the structural benchmark is considered met.

### ANTI‑CORRUPTION LEGAL AND INSTITUTIONAL MEASURES
- Legislative drafts and status:
  - Draft Appendix No. 4 to the Criminal Law prepared and submitted to the National Council; contains provisions related to bribery of foreign public officials, trading in influence, illicit enrichment, bribery, and embezzlement of property in the private sector.
  - Draft Appendix needs further improvements to criminalize the aforementioned offences in line with the United Nations Convention against Corruption.
  - Draft Law on Combating Administrative Corruption prepared; requires the “supreme entity for combating administrative corruption” to register, review, and publish assets owned by senior public officials in line with Article 154 of the Constitution and the authorities’ commitment.
  - Draft Law on Combating Administrative Corruption needs further improvements to establish a robust and effective asset declaration framework.
- AML/CBM progress:
  - Revised Regulation Governing the Reporting and Control of Physical Transfers of Currency, Bearer Negotiable Instruments, Gold, Other Precious Metals or Precious Stones through the Borders:
    - approved by the cabinet on December 30, 2015,
    - published in the official gazette on February 14, 2016.
  - Revised regulation broadly in line with FATF Recommendation 32 and provides a framework to monitor cross‑border transportation of cash and other items.
  - A structural benchmark for Cabinet to issue this revised Regulation was not met by end‑June 2015 but requirements were later completed with Cabinet approval on December 30, 2015.

### FISCAL POLICY, PUBLIC FINANCES, AND LINKS TO ANTI‑CORRUPTION
- 2016 budget assessment and composition:
  - 2016 budget assessed as broadly sound and likely to deliver a small surplus after grants under plausible assumptions.
  - Domestic revenues budgeted at Af 131 billion.
  - Development budget increased by 10 percent (to 13.7 percent of GDP) with the bulk financed through nondiscretionary donor funds.
- Staff cautions and conditionalities:
  - Authorities target a sharp increase in spending execution rates; staff considers these targets too ambitious and assumes a more moderate increase in line with past performance.
  - Any modest, highly concessional external borrowing plan (for infrastructure) should be accompanied by:
    - front‑loaded efforts to mobilize revenue,
    - strengthened debt management and debt service capacity,
    - improved governance,
    - strengthened anti‑corruption and AML frameworks,
    - robust project selection and oversight (with World Bank and Asian Development Bank assistance),
    - gradual scaling up of borrowing given high risk of external debt distress and history of corruption.

### FINANCIAL SECTOR, GOVERNANCE, AND STATE‑OWNED BANKS
- State‑owned banks and fiscal risks:
  - Mission identified significant fiscal risk from state‑owned banks and strategic and operational deficiencies (shareholder oversight, governance, absence of sustainable business models).
  - Recent progress: one state bank remained profitable, another projected to at least break even for 2016, a third likely to continue incurring losses.
  - Privatization of New Kabul Bank (NKB): a few expressions of interest received by the March 7 deadline; authorities considering viability of bids and alternative options should privatization fail.
  - Staff stressed that NKB’s capital deficiency should be transparently reflected and dealt with in the budget.
  - DAB reported the Financial Supervision Department will review weak banks, with results expected in the last quarter of 2016.
  - Bad Debt Commission established to assist state‑owned banks with recovering delinquent amounts; operational procedures issued; success contingent on high‑level official involvement.
- Banking law and regulatory reforms:
  - Promulgation of the banking law — met (Presidential decree on August 19, 2015).
  - Revise banking regulations on asset classification and provisioning — not met by end‑September 2015; requirements later completed with DAB Supreme Council approval on December 28, 2015 (full effect on October 1, 2016).
  - Implementation plan and re‑start sale of NKB — met (NKB offered for sale on October 28, 2015).

### MACROECONOMIC AND POLICY RECOMMENDATIONS RELEVANT FOR ANTI‑CORRUPTION AND GOVERNANCE
- Strengthen anti‑corruption legal and institutional frameworks and enforcement, including asset declaration by senior officials.
- Mobilize the AML/CFT framework to tackle macro‑critical economic crimes; continue efforts to exit the FATF monitoring process to:
  - help ensure the banking sector maintains international correspondent relationships,
  - allow detection of illicit flows.
- Strengthen revenue administration to improve enforcement and compliance, reduce exemptions, and prepare for eventual VAT introduction.
- Develop an Extractive Industries Transparency Initiative‑compliant, effective, and transparent fiscal regime for natural resources; authorities expect the mining law to be submitted to parliament and the mineral fiscal regime to be fully developed by the end of 2016.
- Implement public financial management reforms (five‑year roadmap) decisively, including:
  - improving the medium‑term fiscal framework,
  - strengthening commitment controls and contract and procurement management under the Treasury,
  - reforming the allotment process,
  - strengthening oversight of state‑owned corporations and enterprises.
- Any concessional borrowing for infrastructure should be small, subject to debt sustainability considerations, sound governance, and project appraisal by the World Bank and Asian Development Bank.

### STAFF APPRAISAL HIGHLIGHTS (SELECTED)
- Sustained progress in strengthening anti‑corruption measures and effectively implementing AML/CFT frameworks remains critical to improve the business environment and build trust and accountability.
- Progress on AML/CFT is welcome, but further efforts are needed to exit the FATF monitoring process.
- With limited macro‑policy space, structural reform is critical; large debt‑financed infrastructure spending is not advisable at present — instead, small concessional borrowing subject to safeguards and a facilitative public‑sector role to strengthen the business climate is recommended.
- Urgent need to improve Afghanistan’s statistical database to strengthen economic monitoring and policy making.

### IMPLEMENTATION OF RISK‑BASED AUDITS
- Audit and tax administration:
  - Risk based audits started in MTO, LTO, and STO.
  - Key performance indicators developed and the Tax Audit Manual updated in December 2015.
  - Audit performance indicators show appreciable improvement in 2015 compared to 2014.
  - Policy objective: Improve the effectiveness of revenue collection.
- Banking regulation on related party lending:
  - Recommended revisions include:
    - (i) revising the definition of related parties according to international standards;
    - (ii) confirming the limit on related party aggregate exposures to a maximum of 15 percent of the bank’s unimpaired capital and reserves;
    - (iii) deducting exposure over the limit from capital when assessing capital adequacy unless sufficiently and satisfactorily collateralized.
  - End-December 2015 status: Met. The regulation was approved by the DAB Supreme Council on December 28, 2015 and will come into full effect on January 1, 2017.
  - Implementation note: The element of the second benchmark specifying a related party aggregate exposure limit was misspecified because it contradicts the banking law and should therefore not be pursued.
  - Policy objective: Align key regulations with international standards and best practices.

### RELATIONS WITH THE FUND — INSTITUTIONAL AND FINANCIAL STATUS (AS OF MARCH 31, 2016)
- Membership Status: Joined July 14, 1955; Article XIV.
- General Resources Account:
  - Quota: 323.80 SDR Million, 100.00 Percent Quota
  - Fund holdings of currency (Exchange Rate): 323.61 SDR Million, 99.94 Percent Quota
  - Reserve Tranche Position: 0.19 SDR Million, 0.06 Percent Quota
- SDR Department:
  - Net cumulative allocation: 155.31 SDR Million, 100.00 Percent Allocation
  - Holdings: 84.14 SDR Million, 54.18 Percent Allocation
- Outstanding Purchases and Loans:
  - ECF Arrangements: 54.89 SDR Million, 16.95 Percent Quota
- Latest Financial Arrangements (selection):
  - ECF: Nov. 14, 2011 / Nov. 13, 2014 / 85.00 / 24.00
  - ECF1: Jun 26, 2006 / Sep 25, 2010 / 81.00 / 75.35
  - Stand-By: July 16, 1975 / July 15, 1976 / 8.50 / 8.50
- Projected payments to Fund (SDR million; based on existing use of resources and present holdings of SDRs):
  - 2016 Principal: 8.67
  - 2016 Charges/Interest: 0.03
  - 2016 Total: 8.69
  - 2017 Principal: 15.02
  - 2017 Charges/Interest: 0.04
  - 2017 Total: 15.06
  - 2018 Principal: 11.58
  - 2018 Charges/Interest: 0.04
  - 2018 Total: 11.62
  - 2019 Principal: 7.06
  - 2019 Charges/Interest: 0.08
  - 2019 Total: 7.14
  - 2020 Principal: 5.37
  - 2020 Charges/Interest: 0.06
  - 2020 Total: 5.43
- Article IV and safeguards:
  - Last Article IV consultation discussed by the Executive Board on November 18, 2015.
  - Updated DAB safeguards assessment finalized in December 2011; some recommendations implemented, recommendation concerning DAB’s legal structure remains outstanding.
- Technical assistance (selection, 2011–16): extensive FAD, LEG, MCD, MCM, METAC, and STA missions on PFM, customs, VAT, AML/CFT, monetary policy, problem bank management, statistics, and related areas.

### ADB PARTNERSHIP AND OPERATIONS (SELECTED HIGHLIGHTS)
- Membership and strategy:
  - Afghanistan is a founding member of the Asian Development Bank (ADB), established in 1966.
  - ADB resumed partnership after 1980–2001 hiatus; operations based on COBP 2015–2017 and Interim CPS 2014–2015 (Interim CPS extended to cover 2016).
  - A new COBP to be prepared aligned with a new CPS for 2017–2020.
- Aggregate assistance:
  - By end-December 2015, ADB’s total assistance (grants, loans, and technical assistance) reached US$4.3 billion.
  - Since 2007, ADB provided all public sector assistance on a 100 percent grant basis.
  - Grants make up around 74 percent of ADB’s overall assistance to Afghanistan.
  - In the July 2012 Tokyo Conference, ADB committed another US$1.2 billion to support Afghanistan through 2016.
- AITF and co‑financing:
  - Cumulative direct value‑added official co‑financing as of December 31, 2015: US$605.6 million for 24 investment projects and US$23.7 million for 16 TA projects.
  - Afghanistan Infrastructure Trust Fund (AITF) totals as of March 15, 2016:
    - Total amount received in AITF: US$395.15 million
    - Total commitments: US$526.90 million, including:
      - Japan (Embassy of Japan): US$127.5 million
      - United States (USAID): US$113.0 million
      - United Kingdom (DFID): US$119.6 million (out of a total commitment of US$251.4 million)
      - NATO Trust Fund: US$35 million
- Transport and energy results:
  - Transport: ADB provided US$2.2 billion to construct or upgrade over 1,700 km of regional and national roads; US$808 million for Transport Network Development Investment Program (halved travel times on 570 km).
  - Airports: rehabilitation of four regional airports increased passenger volumes to more than double pre-upgrade levels.
  - Railway: funded first railway line between Mazar‑e‑Sharif and Uzbekistan border; about 10 million tons of goods transported to date.
  - Energy: nearly US$1.2 billion provided to support energy infrastructure:
    - 1,460 km of power transmission lines
    - 16 substations
    - 143,000 new power distribution connections
  - Regional projects include TAPI and TUTAP support.
- Natural resources and agriculture:
  - Investments to date: US$502 million for irrigation and agricultural infrastructure.
  - Around 160,000 hectares rehabilitated and upgraded; work continuing on an additional 260,000 hectares.
  - Planned ADB provision over coming three years: about US$400 million for improved water resources management and infrastructure.
- Private sector and financial sector examples:
  - Private sector approvals as of December 31, 2015: cumulative US$198.1 million (six projects).
  - Major project: Roshan Cellular Telecommunications Project (direct loans totaling US$70 million for Phases 1 and 2; US$60 million direct loan in 2008 for Phase 3).
  - ADB invested US$2.6 million in Afghanistan International Bank (AIB); AIB awarded best bank in Afghanistan for 2012–2015; ADB divested last shares in January 2016 and received US$11.2 million from dividends and put options.
- Donor coordination and roles:
  - ADB is active in JCMB and ARTF Management Committee; leads infrastructure sector and regional cooperation policy dialogues and consults with civil society.
- Statistical issues (as of March 25, 2016):
  - Data broadly adequate for surveillance but shortcomings in national accounts and external sector.
  - 2002–2003 base year more than 10 years old and needs updating.
  - CPI compiled monthly from 10 cities/provinces and Kabul; improvements underway.
  - Government Finance Statistics compiled on cash basis per GFSM 2001; AFMIS rollout improving timeliness and quality.
  - DAB reports SRFs monthly with a two‑month lag; data reporting issues from Kabul Bank restructuring.
  - External sector: BOP and IIP compiled to BPM5; DAB converted data to BPM6 format and sent to STA.
- Selected operational figures and portfolios:
  - IDA commitments since 2002: total of US$3.6 billion (86 percent grants, 14 percent credits).
  - ARTF totals: US$8.94 billion generated from 34 donors; committed US$3.93 billion for recurrent costs and US$4.15 billion for investment programs.
  - Active IDA portfolio (end‑Aug 2015): US$725.98 million; active ARTF investment portfolio: US$2.8 billion.
  - Typical annual grant resources: close to US$1 billion per year (about US$150 million from IDA and about US$800–US$900 million from the ARTF).
  - FY2016 approvals and disbursements (selection):
    - Trans‑Hindukush Road Connectivity Project: $250 million approved.
    - Additional financing Second Customs Reform and Trade Facilitation Project: US$21.5 million.
    - ARTF new projects: $83 million (Naghlu Hydropower Rehabilitation Project), $6 million (DABS TA), $50 million (Higher Education Development Project).
    - Additional financing: $41 million (Second Public Financial Management Project); $45 million (On‑farm Water Management Project).
    - As of March 27, 2016, in FY2016 (July 1, 2015–March 27, 2016), US$368 million disbursed under the Recurrent Cost Window.
  - IFC and MIGA: IFC committed portfolio rose to about US$135 million (FY14) then about $54 million currently; MIGA has US$154 million of gross exposure supporting telecoms and agribusiness projects.

*International Monetary Fund — ISLAMIC REPUBLIC OF AFGHANISTAN staff report (2016).*

### 2016. The staff team comprised Christoph Duenwald (head),

### _cr16120 - 2016. The staff team comprised Christoph Duenwald (head),

### CONTEXT
- The Afghan economy faced strong headwinds from: deepening uncertainty about the political transition following the 2014 presidential election; corruption and weak governance; a weakening security environment; and the continued drag from the drawdown of international troops.
- Quadrilateral peace talks (Afghanistan, China, Pakistan, and the U.S.) had been launched but had not produced tangible results; insurgent attacks continued.
- National unity government formed after the 2014 election is determined to tackle challenges; parliamentary elections scheduled for October (some observers expect a delay).
- Two major donor conferences in the year: July in Warsaw (security assistance focus) and October in Brussels (development assistance focus).
- In May 2015, IMF management approved an SMP aimed at addressing fiscal and banking vulnerabilities, preserving macroeconomic stability, improving prospects for inclusive growth, and building a track record for a future IMF financial arrangement.

### ECONOMIC DEVELOPMENTS — RECENT FINDINGS
- GDP growth in 2015 is estimated at about 1.5 percent, driven down by deterioration in security conditions, delays in budget execution, and unfavorable weather lowering agricultural output.
- Inflation: turned negative in March 2015 due to low global food prices, subdued demand, and a depressed housing market; recently returned to positive territory mainly due to the Afghani’s earlier depreciation.
- Reserve and broad money grew by only 3 percent in 2015.
- Private sector credit growth remained negative through most of 2015.
- 2015 overall budget outcome:
  - Operating deficit before grants was 2.3 percentage points below the target of 12 percent of GDP.
  - Overall budget including grants was in deficit of 1.4 percent of GDP (rather than in balance as projected).
  - Deficit financed through drawdown of the Treasury’s nondiscretionary cash balances.
  - Year-end discretionary cash balances were well above the indicative floor of Af5 billion.
- Domestic revenues (2015 outturn):
  - Total Revenue: 122.3 (billions of Afghanis)
  - Base Revenue: 108.3 (billions of Afghanis)
  - 2015 Revenue Measures: 5.2 (billions of Afghanis)
  - Tax and Nontax Arrears/One-offs: 8.8 (billions of Afghanis)
  - Total Revenue as percent of GDP: 10.4
  - Base Revenue as percent of GDP: 9.2
  - Tax Revenue as percent of GDP: 7.6
- External sector:
  - Trade deficit remained large, nearly 40 percent of GDP.
  - Current account recorded a surplus of 4.5 percent of GDP, financed by official grants (noting official statistics record some grants in the capital account leading to a reported current account deficit in official statistics).
- Exchange rate and reserves:
  - Acceleration of emigration and related capital outflows contributed to a year-on-year depreciation of the Afghani by 17 percent in December 2015.
  - Da Afghanistan Bank (DAB) supplied foreign exchange to mitigate pressures and maintained a reserve buffer of more than 8 months of imports.
- Financial sector:
  - Nonperforming loans increased from 7.8 percent of gross loans in December 2014 to 12.3 percent in December 2015.
  - Profitability under pressure; negative returns on assets and equity during most of 2015.
  - Liquid assets constituted 71 percent of total assets.
  - Regulatory capital to risk-weighted assets ratio of 28 percent (comparative figures: 13 percent in India and 17 percent in Pakistan).
- Regional/international integration developments:
  - Afghanistan's WTO application approved in December (accession could occur in the summer).
  - Construction of TAPI began in December; expected operational in 2019, resulting in some US$400 million of annual transit fees for Afghanistan (financing package incomplete).
  - CASA-1000 agreements being finalized; World Bank to cover Afghanistan’s financing needs (US$316 million) via a grant.

### OUTLOOK AND RISKS — PROJECTIONS AND ASSUMPTIONS
- Revised growth and inflation projections:
  - Growth projection for 2016 revised down to 2 percent (from prior scenario).
  - Medium-term growth projected to rise to 4 percent by 2019.
  - Inflation projected to average 3 percent in 2016 and then to 6 percent over the medium term.
- External flows and reserves:
  - Grant projections for 2016 revised up partly reflecting delayed disbursements from 2015.
  - Over time, as official transfers decline and growth picks up, the current account is projected to turn into deficit, though international reserves will remain at comfortable levels.
- Revenue and expenditure medium-term assumptions:
  - Baseline no longer assumes VAT introduction or rapid natural resource sector development; revenue improvements stem only from strengthened enforcement and compliance and CASA transit fees from 2018 onwards.
  - Staff assumes an increase of almost 1 percent of GDP in development spending in 2016 with no further pick-up afterward.
  - Slower-than-previously-projected pick-up in operating expenditures due to more gradual transfer to the budget of donor-funded off-budget security spending.
  - Total on- and off-budget donor aid assumed to remain broadly unchanged in percent of GDP over the medium term, pending Warsaw and Brussels conferences.
- Risks:
  - Risks are tilted to the downside: worsening security, aid shortfalls, or accelerated migrant outflows could re-emerge exchange rate pressures and further decelerate growth and increase unemployment.
  - Upside: a lasting political agreement with insurgents and increased regional integration.

### POLICY-RELEVANT INSTITUTIONAL AND SAFEGUARD ISSUES
- DAB safeguards:
  - Most recent safeguards assessment finalized in 2011 (context of Kabul Bank fraud).
  - Recommendation on recapitalization of DAB through a government promissory note implemented.
  - DAB publishes Kabul Bank’s annual financial statements audited by an international audit firm.
  - Controls in some safeguards areas improved; capacity constraints remain.
  - Amendment of the DAB law remains a challenge; recommendation concerning DAB’s legal structure outstanding.

### PROGRAM PERFORMANCE — SMP IMPLEMENTATION AND STRUCTURAL BENCHMARKS
- Overall assessment: Program performance satisfactory; overall performance under the SMP deemed satisfactory given challenging circumstances.
- Quantitative targets: All end-December quantitative targets met after adjustments for net credit to the government (upward) and net international reserves (downward).
- Structural benchmarks status summary:
  - Met (1st Review): Hire independent external audit for bad debt recoveries (other vulnerable bank); Promulgate the banking law; Implement revenue measures proposed in the 2015 budget; Implement reform plan and re-start sale of NKB.
  - Not Met (1st Review) but requirements completed later: Revised Regulation under Article 7 of the AML Law on currency reporting at the border; Revise banking regulation on asset classification and provisioning (requirements completed by end-December).
  - Met (2nd Review): Afghanistan Revenue Department implemented a data-driven risk-based audit case selection process; Revise banking regulation on related party lending (approved by DAB Supreme Council on December 28; to come into full effect on October 1, 2016 and January 1, 2017, respectively).
- Specifics on revenue administration progress:
  - Afghanistan Revenue Department established Risk Analysis Committees in large, medium, and small tax-payer offices in the second half of 2015.
  - Centralized Risk Based Compliance Analysis Unit approved in September 2015 and expected to be functional by May 2016.
  - Tax Audit Manual updated in December 2015.
  - Audit performance indicators showed appreciable improvement in 2015 compared to 2014.
- Related party lending benchmark note:
  - Part of the second benchmark specifying a related party aggregate exposure limit was misspecified because it contradicted the banking law and therefore should not be pursued; other parts were met and the structural benchmark is considered met.

*International Monetary Fund — ISLAMIC REPUBLIC OF AFGHANISTAN staff report (2016).*

### 17.      The authorities have taken steps to strengthen the anti-corruption legal framework.

### _cr16120 - 17.      The authorities have taken steps to strengthen the anti-corruption legal framework.

### Anti‑corruption legal and institutional measures
- A draft Appendix No. 4 to the Criminal Law has been prepared and submitted to the National Council. It contains provisions related to:
  - bribery of foreign public officials,
  - trading in influence,
  - illicit enrichment,
  - bribery, and
  - embezzlement of property in the private sector.
- The draft Appendix needs further improvements to criminalize the aforementioned offences in line with the United Nations Convention against Corruption.
- A draft Law on Combating Administrative Corruption has been prepared. It requires the “supreme entity for combating administrative corruption” to:
  - register, review, and publish assets owned by senior public officials in line with Article 154 of the Constitution and the authorities’ commitment.
- The draft Law on Combating Administrative Corruption needs further improvements to establish a robust and effective asset declaration framework.

### Related AML/CBM (anti‑money laundering / cross‑border monitoring) progress
- The revised Regulation Governing the Reporting and Control of Physical Transfers of Currency, Bearer Negotiable Instruments, Gold, Other Precious Metals or Precious Stones through the Borders was:
  - approved by the cabinet on December 30, 2015,
  - published in the official gazette on February 14, 2016.
- The revised regulation is broadly in line with the FATF Recommendation 32 and provides a framework to monitor cross‑border transportation of cash and other items covered with a view to detecting potential money laundering, financing of terrorism, or other crimes.
- A structural benchmark to have the Council of Ministers issue a revised Regulation under Article 7 of the AML Law on currency reporting at the border (in line with FATF recommendation 32) was not met by end‑June 2015, but the requirements were later completed with Cabinet approval on December 30, 2015.

### Fiscal policy, public finances, and links to anti‑corruption
- The 2016 budget is assessed as broadly sound and is likely, under plausible assumptions on revenue collection and expenditure execution, to deliver a small surplus after grants while allowing for an increase in development and pro‑poor spending.
- Domestic revenues are budgeted at Af 131 billion.
- The development budget has increased by 10 percent (to 13.7 percent of GDP) with the bulk financed through nondiscretionary donor funds.
- Authorities target a sharp increase in spending execution rates; staff considers these targets too ambitious and assumes a more moderate increase in line with past performance.
- Staff stressed that any modest, highly concessional external borrowing plan (for infrastructure) would need to be accompanied by:
  - front‑loaded efforts to mobilize revenue,
  - strengthened debt management and debt service capacity,
  - improved governance,
  - strengthened anti‑corruption and AML frameworks,
  - robust project selection and oversight (with World Bank and Asian Development Bank assistance),
  - gradual scaling up of borrowing given the high risk of external debt distress and history of corruption.

### Financial sector, governance, and state‑owned banks
- The mission pressed for reforms of the state‑owned banks, identifying:
  - significant fiscal risk from these banks,
  - strategic and operational deficiencies (shareholder oversight, governance, absence of sustainable business models).
- Recent progress noted:
  - one state bank remained profitable,
  - another projected to at least break even for 2016,
  - a third likely to continue incurring losses.
- Efforts to privatize New Kabul Bank (NKB) are ongoing:
  - a few expressions of interest were received by the March 7 deadline,
  - authorities are considering viability of bids and alternative options should privatization fail.
- Staff stressed that NKB’s capital deficiency should be transparently reflected and dealt with in the budget.
- DAB (Da Afghanistan Bank) reported the Financial Supervision Department will review weak banks, with results expected in the last quarter of 2016.
- The Bad Debt Commission was established to assist state‑owned banks with recovering delinquent amounts; it is reportedly meeting regularly, having issued operational procedures, with success contingent on involvement of high‑level officials.
- Structural benchmarks and regulatory reforms related to banking were documented:
  - Promulgation of the banking law — met (Presidential decree on August 19, 2015).
  - Revise banking regulations on asset classification and provisioning — not met by end‑September 2015; requirements later completed with DAB Supreme Council approval on December 28, 2015 (full effect on October 1, 2016).
  - Implementation plan and re‑start sale of NKB — met (NKB offered for sale on October 28, 2015).

### Macroeconomic and policy recommendations relevant for anti‑corruption and governance
- Strengthen anti‑corruption legal and institutional frameworks and enforcement, including in relation to asset declaration by senior officials.
- Mobilize the AML/CFT framework to tackle macro‑critical economic crimes; continue efforts to exit the FATF monitoring process to:
  - help ensure the banking sector maintains international correspondent relationships,
  - allow detection of illicit flows.
- Strengthen revenue administration to improve enforcement and compliance, reduce exemptions, and prepare for eventual VAT introduction.
- Develop an Extractive Industries Transparency Initiative‑compliant, effective, and transparent fiscal regime for natural resources; authorities expect the mining law to be submitted to parliament and the mineral fiscal regime to be fully developed by the end of 2016.
- Implement public financial management reforms (five‑year roadmap) decisively, including:
  - improving the medium‑term fiscal framework,
  - strengthening commitment controls and contract and procurement management under the Treasury,
  - reforming the allotment process,
  - strengthening oversight of state‑owned corporations and enterprises.
- Any concessional borrowing for infrastructure should be small, subject to debt sustainability considerations, sound governance, and project appraisal by the World Bank and Asian Development Bank.

### Staff appraisal highlights (selected)
- Sustained progress in strengthening anti‑corruption measures and effectively implementing AML/CFT frameworks remains critical to improve the business environment and build trust and accountability.
- The progress made on AML/CFT is welcome, but further efforts are needed to exit the FATF monitoring process.
- With limited macro‑policy space, structural reform is critical; large debt‑financed infrastructure spending is not advisable at present — instead, small concessional borrowing subject to safeguards and a facilitative public‑sector role to strengthen the business climate is recommended.
- There is an urgent need to improve Afghanistan’s statistical database to strengthen economic monitoring and policy making.

*Source: IMF staff report extract — “The authorities have taken steps to strengthen the anti-corruption legal framework.”*

### 2016. Implementation of risk based audits

### 2016. Implementation of risk based audits

### Audit implementation and tax administration findings
- Risk based audits were started in MTO, LTO, and STO.
- Key performance indicators were developed and the Tax Audit Manual was updated in December 2015.
- The audit performance indicators show an appreciable improvement in 2015 compared to 2014.
- Policy objective: Improve the effectiveness of revenue collection.

### Banking regulation on related party lending (policy revision and benchmark)
- Recommended revisions to the regulation on related party lending limits should include:
  - (i) revising the definition of related parties according to international standards;
  - (ii) confirming the limit on related party aggregate exposures to a maximum of 15 percent of the bank’s unimpaired capital and reserves; and
  - (iii) in case of any exposure over the limit prescribed in the regulation, deduct such exposure from capital when assessing capital adequacy, unless sufficiently and satisfactorily collateralized.
- End-December 2015 status: Met. The regulation was approved by the DAB Supreme Council on December 28, 2015 and will come into full effect on January 1, 2017.
- Implementation note: The element of the second benchmark specifying a related party aggregate exposure limit was misspecified, in that it contradicts the banking law, and should therefore not be pursued.
- Policy objective: Align key regulations with international standards and best practices.

### Relations with the Fund — institutional and financial status (as of March 31, 2016)
- Membership Status: Joined July 14, 1955; Article XIV.
- General Resources Account:
  - Quota: 323.80 SDR Million, 100.00 Percent Quota
  - Fund holdings of currency (Exchange Rate): 323.61 SDR Million, 99.94 Percent Quota
  - Reserve Tranche Position: 0.19 SDR Million, 0.06 Percent Quota
- SDR Department:
  - Net cumulative allocation: 155.31 SDR Million, 100.00 Percent Allocation
  - Holdings: 84.14 SDR Million, 54.18 Percent Allocation
- Outstanding Purchases and Loans:
  - ECF Arrangements: 54.89 SDR Million, 16.95 Percent Quota
- Latest Financial Arrangements (Type / Date of Arrangement / Expiration Date / Amount Approved (SDR Million) / Amount Drawn (SDR Million)):
  - ECF: Nov. 14, 2011 / Nov. 13, 2014 / 85.00 / 24.00
  - ECF1: Jun 26, 2006 / Sep 25, 2010 / 81.00 / 75.35
  - Stand-By: July 16, 1975 / July 15, 1976 / 8.50 / 8.50
  - 1 Formerly PRGF.

### Projected payments to Fund (SDR million; based on existing use of resources and present holdings of SDRs)
- Forthcoming:
  - 2016 Principal: 8.67
  - 2016 Charges/Interest: 0.03
  - 2016 Total: 8.69
  - 2017 Principal: 15.02
  - 2017 Charges/Interest: 0.04
  - 2017 Total: 15.06
  - 2018 Principal: 11.58
  - 2018 Charges/Interest: 0.04
  - 2018 Total: 11.62
  - 2019 Principal: 7.06
  - 2019 Charges/Interest: 0.08
  - 2019 Total: 7.14
  - 2020 Principal: 5.37
  - 2020 Charges/Interest: 0.06
  - 2020 Total: 5.43

### HIPC, MDRI, and PCDR implementation notes
- Implementation of HIPC Initiative: Enhanced Framework
  - I. Commitment of HIPC assistance
    - Decision point date: Jul 2007
    - Assistance committed by all creditors (US$ million, NPV) 1/: 582.40
    - Of which: IMF assistance (US$ million): --
    - (SDR equivalent in millions): --
    - Completion point date: Jan 2010
  - II. Disbursement of IMF assistance (SDR million)
    - Assistance disbursed to the member: --
    - Interim assistance: --
    - Completion point balance: --
    - Additional disbursement of interest income2/: --
    - Total disbursements: --
    - 1/ Assistance committed under the original framework is expressed in net present value (NPV) terms at the completion point, and assistance committed under the enhanced framework is expressed in NPV terms at the decision point. Hence these two amounts cannot be added.
    - 2/ Under the enhanced framework, and additional disbursement is made at the completion point corresponding to interest income earned on the amount committed at the decision point but not disbursed during the interim period.
- Implementation of MDRI Assistance: Not Applicable
- Implementation of PCDR: Not Applicable

### Nonfinancial relations and exchange system
- Exchange Arrangement:
  - Afghanistan is an Article XIV member country.
  - Maintains an exchange system free of multiple currency practices and restrictions on payments and transfers for current international transactions.
  - Authorities confirmed interest to move to Article VIII status.
  - De jure exchange rate regime: managed floating; de facto float system with no predetermined path for the exchange rate.
  - On March 22, 2016, the average of the buying and selling exchange rates in cash transactions on the Kabul money exchange market was 68.36 Afghanis per U.S. dollar.
- Monetary policy operations:
  - Foreign exchange auctions used since May 2002; capital note auctions since September 2004.
  - Foreign exchange auctions initially open only to licensed money changers; since June 2005 open to commercial banks.
  - Capital note auctions open to commercial banks.
  - Auctions linked to overall monetary program and held on a regular basis.

### Article IV consultation and safeguards assessment
- Last Article IV consultation discussed by the Executive Board on November 18, 2015.
- Safeguards Assessment:
  - Updated assessment of Da Afghanistan Bank (DAB) finalized in December 2011.
  - Findings: DAB had strengthened some safeguards elements since 2008, but an effective internal audit mechanism had not been established.
  - Recommendations addressed risks from the Kabul Bank fraud, including central bank autonomy and recapitalization.
  - Some 2011 safeguards recommendations implemented, albeit with delay; recommendation concerning DAB’s legal structure remains outstanding.
  - DAB continues to publish audited financial statements on its website.

### Technical assistance, 2011–16 (departments, dates, and purposes — selection)
- FAD missions: January 2–12, 2011 (PFM Assessment); January 22–February 4, 2011 (Customs Administration); April 1–13, 2011 (Customs Administration); September 15–22, 2011 (Program Budgeting Reform); January 14–18, 2012 (Visit to Support SIGTAS Preparations); January 14–25, 2012 (VAT Introduction); January 14–28, 2012 (Customs Administration); April 4–14, 2012 (Follow-up mission); April 6–14, 2012 (Follow-up to review PFM Roadmap); April 13–May 1, 2013 (Customs Administration); April 29–May 6, 2013 (Public Financial Management Reform); April 29–May 8, 2013 (Follow-up mission PFM); September 26–October 4, 2013 (Reform of the Fiscal Regimes for the Extractive Industries); April 15–21, 2015 (Tax Policy for Extractive industries).
- LEG missions: September 21–26, 2013 (Diagnostic Review of AML/CFT regime); February 5–6, 2014 (Awareness raising workshop for Parliamentarians (Dubai)); April 28–May 2, 2014 (AML/CFT training for DAB and FinTRACA officials); November 10–14, 2014 (TA on AML/CFT issues); February 9–13, 2015 (AML/CFT training); September 6–10, 2015 (AML/CFT training).
- MCD and MCM missions: August 29, 2011–August 2013 (Resident monetary policy and banking advisor); multiple MCM missions on Sukuk and strengthening central bank operations between July 3, 2012 and December 2013; Problem bank management missions March 1–March 20, 2015; September 8–21, 2015; December 4–18, 2015; and February 22 to April 1, 2016.
- METAC and STA missions: numerous technical assistance missions on Financial Planning, Tax Information Systems, Developing Regulations, Consumer price statistics, Balance of Payments and IIP Statistics, VAT study mission, External Sector Statistics, Monetary and financial statistics, National accounts statistics, Price Statistics (including February 8–12, 2016).

### Relations with the World Bank (as of March 2016) — program highlights and financing
- World Bank Group program governed by Interim Strategy Note (ISN) for FY 2012–FY 2014 focusing on: (i) building legitimacy and capacity of institutions; (ii) equitable service delivery; (iii) inclusive growth and jobs.
- IDA commitments since 2002: total of US$3.6 billion in grants (86 percent) and credits (14 percent).
- ARTF totals: generated US$8.94 billion from 34 donors; committed US$3.93 billion for recurrent costs and US$4.15 billion for investment programs.
- Active portfolios as of end-August 2015: active IDA portfolio US$725.98 million; active ARTF investment portfolio US$2.8 billion.
- Typical annual grant resources: close to US$1 billion per year (about US$150 million from IDA and about US$800–US$900 million from the ARTF).
- FY 2016 approvals and disbursements:
  - Trans-Hindukush Road Connectivity Project: $250 million approved.
  - Additional financing for Second Customs Reform and Trade Facilitation Project: US$21.5 million.
  - ARTF new projects: $83 million (Naghlu Hydropower Rehabilitation Project), $6 million (DABS TA), $50 million (Higher Education Development Project).
  - Additional financing: $41 million (Second Public Financial Management Project); $45 million (On-farm Water Management Project).
  - As of March 27, 2016, in FY2016 (July 1, 2015–March 27, 2016), US$368 million disbursed under the Recurrent Cost Window.
- IFC and MIGA involvement:
  - IFC committed investment portfolio increased from around US$58 million (FY08) to about US$135 million (FY14); currently about $54 million in portfolio.
  - MIGA has US$154 million of gross exposure in Afghanistan supporting telecoms and agribusiness projects.

### Implementation of the Joint Management Action Plan on Bank-Fund collaboration (as of March 31, 2016)
- Coordination and consultation:
  - Afghanistan country teams of the World Bank (led by Mr. Saum) and the IMF (led by Mr. Ross until November 2015, and Mr. Duenwald subsequently) held several consultations in 2015 and 2016 to exchange views, identify macroeconomic priorities, and coordinate work programs.
- World Bank work program highlights:
  - Continued support to education, health services, energy, rural infrastructure, and institutions for transparent economic and financial management.
  - Technical assistance in customs reforms, revenue administration, public financial management, and economic statistics.
  - ARTF Incentive Program (IP) supports revenue mobilization, PFM, revenue administration, tax policy, investment climate, and land administration; IP provides a financing envelope of US$900 million for 2015–2017.
  - Potential consultations on a new Development Policy Grant during 2016.
- Fund work program highlights:
  - Staff-Monitored Program (SMP) approved May 2015 and completed December 2015; focused on sustaining macroeconomic stability, fiscal sustainability, domestic revenue mobilization, financial sector safeguards, economic governance, and absorption capacity.
  - SMP included quantitative targets (met) and structural benchmarks (met, some with delay).
  - World Bank team participated in SMP missions as observer.
  - Continued Fund emphasis on legislation (new banking law, central bank law, AML and CFT laws), monetary policy, banking supervision, customs reform, problem bank management, and external sector statistics.
- Table of planned activities (selection):
  - Fund: ECF program 2011–14 (November 2011); Staff Monitored Program (SMP) February 2015 (May 2015); Article IV Consultation and First Review under the SMP September 2015 (November 2015); Second and last review under the SMP February-March, 2016 (April 2016).
  - Bank: Financial Sector Rapid Response Project, Supervision November 2011–November 2016 (October 2013); ARTF IP Program (2015–2017) Preparation of MoU April–August 2015 (September 2015); Study: Revenue Review April 2015–May 2016 (May 2015); Study: Financial Sector Review May 2016–May 2017 (May 2017); TA to Fiscal Policy Unit January 2016–June 2018 (continuous); Debt Management Assistance February 2016–June 2018 (continuous); Growth and Fragility Report January 2016–December 2016 (December 2016); Sukuk Market and Pension Reform TA May 2016–June 2018; Fiscal Sustainability Analysis (long-term) January 2016–September 2016 (September 2016).
  - Joint activities: AML/CFT follow-up (Continuous); Dialogue on revenue mobilization (Continuous); Dialogue on macro-fiscal stability (Continuous); Strengthening of the banking sector (Continuous); Debt management (Continuous).

*Prepared By The Middle East and Central Asia Department (In collaboration with other departments, the World Bank, and the Asian Development Bank); April 13, 2016.*

### 1. Afghanistan is a founding member of the Asian Development Bank (ADB), established in

### _cr16120 - 1. Afghanistan is a founding member of the Asian Development Bank (ADB), established in

### ADB partnership and strategic framework
- Afghanistan is a founding member of the Asian Development Bank (ADB), established in 1966.
- ADB resumed partnership with Afghanistan after a hiatus from 1980 to 2001.
- ADB supports the country’s National Development Strategies (NDS) and National Priority Programs (NPPs) as the agreed foundations of the partnership.
- ADB reaffirmed medium to long term partnership at conferences and meetings in January 2010 (London), July 2010 (Kabul), 2012 (Chicago and Tokyo), 2014 (London), and subsequent senior officials’ meetings in 2015.
- Current operations are based on the Country Operations Business Plan (COBP) 2015–2017 and the Interim Country Partnership Strategy (CPS) 2014–2015.
- A new COBP will be prepared, aligned with the Interim CPS (extended to cover 2016) and a new CPS to be prepared for the period 2017-2020.
- The COBP is fully aligned with NPPs and government priorities in the infrastructure sector and focuses on energy, transport, and agriculture and natural resources; it will promote inclusive economic growth, regional integration, governance, and capacity development.
- The Interim CPS is aligned with NPPs and the government’s development strategy—Towards Self Reliance—a Strategic Vision Beyond 2025.

### Aggregate assistance and grant composition
- By end-December 2015, ADB’s total assistance (grants, loans, and technical assistance) reached US$4.3 billion.
- Since 2007, ADB has provided all of its public sector assistance on a 100 percent grant basis.
- Grants make up around 74 percent of ADB’s overall assistance to Afghanistan.
- In the July 2012 Tokyo Conference, ADB committed another US$1.2 billion to support Afghanistan through 2016.

### Co-financing and Afghanistan Infrastructure Trust Fund (AITF)
- As of December 31, 2015, cumulative direct value-added official co-financing amounted to US$605.6 million for 24 investment projects and US$23.7 million for 16 TA projects.
- ADB manages the Afghanistan Infrastructure Trust Fund (AITF) as a financing modality for pooled infrastructure financing.
- AITF allows development partners to meet the pledge of 50 percent on-budget and 80 percent alignment with NPPs as agreed in the 2010 Kabul Conference.
- As of 15 March 2016, the total amount received in AITF was US$395.15 million, with total commitments of US$526.90 million, including:
  - Japan (Embassy of Japan): US$127.5 million
  - United States (USAID): US$113.0 million
  - United Kingdom (DFID): US$119.6 million (out of a total commitment of US$251.4 million)
  - NATO Trust Fund: US$35 million

### Transport sector interventions and outcomes
- ADB is the largest on-budget donor in the transport sector.
- As of December 31, 2015, ADB has provided US$2.2 billion to construct or upgrade over 1,700 km of regional and national roads.
- This includes US$808 million for the Transport Network Development Investment Program, which has more than halved travel times on 570 km of regional and national roads.
- ADB helped rehabilitate four regional airports, increasing passenger volumes to more than double the pre-upgrade levels.
- ADB funded Afghanistan’s first railway line between Mazar-e-Sharif and the border of Uzbekistan, which became fully operational in 2012; to date, about 10 million tons of goods have been transported.
- ADB supported establishment of the Afghanistan Railway Authority to regulate and ensure sustainability of the railway sector.

### Energy sector interventions and outcomes
- ADB is the largest on-budget donor for Afghanistan’s energy sector.
- To date, ADB has provided nearly US$1.2 billion to support energy infrastructure in Afghanistan.
- Deliveries include:
  - 1,460 km of power transmission lines
  - 16 substations
  - 143,000 new power distribution connections to the electricity grid and system
- ADB’s technical assistance includes support through the Inter-ministerial Commission (IEC), Renewable Energy, Gas Sector Development Master Plan, and Energy Sector Master Plans.
- ADB contributes to policy dialogue and donor coordination and finances master plans for the power and gas subsectors.
- Key regional projects supported under Central Asia-South Asia regional initiatives include the TAPI gas pipeline project and the TUTAP electricity project.

### Natural resources, agriculture, and water management
- As of December 31, 2015, total investment reached US$502 million to rehabilitate and establish new irrigation and agricultural infrastructure, and strengthen institutional environment for economic growth and water resources management.
- Around 160,000 hectares of irrigated land have been rehabilitated and upgraded, with work continuing on an additional 260,000 hectares.
- Investments have led to more efficient use of water resources, a rise in agricultural productivity, and improved farm livelihoods.
- Over the coming three years, ADB planned to provide about US$400 million for improved water resources management and infrastructure construction aimed at water use efficiency and better agriculture productivity.

### Fiscal management, governance, and capacity development
- ADB assistance has improved fiscal management through policy, institutional and capacity-building reforms covering expenditure and revenue management, civil service management, provincial administration, and transparency and accountability in the public sector.

### Private sector operations
- ADB’s private sector operations in Afghanistan began in 2004.
- As of December 31, 2015, cumulative approvals in six projects amounted to US$198.1 million.
- Total outstanding balances and undisbursed commitments to private sector projects amounted to US$3.5 million.
- Major private sector project: lending to Roshan Cellular Telecommunications Project:
  - Direct loans totaling US$70 million for Phases 1 and 2
  - ADB approved a direct loan of US$60 million in 2008 to finance Roshan's Phase 3 expansion
  - In 2012, the project received an award for Excellence in Fragile States Engagement from the U.S. Treasury
- Financial sector example: ADB invested US$2.6 million in Afghanistan International Bank (AIB), establishing the first private commercial bank in the post-Taliban regime.
  - AIB awarded best bank in Afghanistan for 2012, 2013, 2014, and 2015; balance sheet just short of US$1 billion.
  - In January 2016, ADB divested its last shares of AIB but had received US$11.2 million from dividends and put options.

### Donor coordination and institutional roles
- ADB is an active member of the Joint Coordination and Monitoring Board (JCMB) and the Afghanistan Reconstruction Trust Fund Management Committee.
- ADB participates in JCMB Social and Economic Development Standing Committee, Ministry of Finance's High Level Committee on Aid Effectiveness, and the Inter-Ministerial Committee on Energy.
- ADB leads infrastructure sector and regional cooperation-related policy dialogues and is a member of the core donor group to ensure coordination and harmonization among donors and the government.
- ADB consults continuously with civil society and non-governmental organizations regarding project design and implementation.

### Statistical issues and data adequacy for surveillance (as of March 25, 2016)
- General: Data provision has some shortcomings, but is broadly adequate for surveillance. Key shortcomings are in national accounts and the external sector due to organizational weaknesses and security conditions.
- National Accounts:
  - Compilation broadly follows the System of National Accounts 1993 (1993 SNA).
  - GDP is compiled by the production and expenditure approaches.
  - Key expenditure aggregates available: household consumption, gross fixed capital formation, imports and exports; changes in inventories derived residually.
  - Coverage limited due to data gaps severe for some provinces and activities.
  - Foreign trade data need improvement in coverage, concepts, and timeliness.
  - The 2002–2003 base year is more than 10 years old and needs updating.
- Price Statistics:
  - CSO compiles monthly consumer price index based on data from 10 cities/provinces and Kabul.
  - CPI overhaul included: implementation of full, five-digit COICOP; update of consumer basket weights using 2011/2012 household survey (previous weights dated to 1987); expansion of coverage from six to ten cities/provinces (out of 34).
  - Additional improvements suggested: further expand coverage, upgrade IT systems and communications with remote provinces, strengthen quality control and field supervision, hire and train more staff.
- Government Finance Statistics:
  - Fiscal data compiled on cash basis per GFSM 2001 for central and general government.
  - Timeliness and quality improving, particularly after AFMIS rollout and connectivity to central ministries and provincial offices.
  - With IMF support, Ministry of Finance is implementing GFSM 2001 and reporting monthly GFS data for central government core budget; work ongoing to expand monthly and quarterly coverage to general government.
- Monetary and Financial Statistics:
  - Da Afghanistan Bank (DAB) reports SRFs 1SR (DAB), 2SR (ODCs), and 5SR (monetary aggregates) for IMF IFS monthly with a two-month lag.
  - Data reporting issues arise from restructuring of the Kabul Bank.
- Financial sector surveillance:
  - Afghanistan reports 11 of the 12 core FSIs and 10 of the 13 encouraged FSIs for deposit takers, and 2 FSIs for real estate markets quarterly with one quarter lag.
- External sector statistics:
  - Balance of payments and IIP compiled according to the fifth edition of the Balance of Payments Manual.
  - DAB converted data into the sixth edition format and sent to STA; data under STA review.
  - METAC TA missions assisted DAB up to September 2015; net errors and omissions remain considerable but coverage has improved and net errors and omissions have decreased.
  - A direct investment survey is needed and consistently revised historical data should be compiled.
- Data dissemination:
  - Afghanistan has been a GDDS participant since June 2006 and is currently in the e-GDDS.
  - No data ROSC has been done.

### Selected dates and data-frequency table excerpts (as of March 25, 2016)
- Exchange Rates: Date of Latest Observation October 2015; Date Received 12/7/2015; Frequency D (daily) for Data, Reporting, and Publication.
- International Reserve Assets and Reserve Liabilities of the Monetary Authorities: Date of Latest Observation December 2015; Date Received 2/13/2016; Frequency M (monthly) for Data, Reporting, and Publication.
- Reserve/Base Money: Date of Latest Observation December 2015; Date Received 2/13/2016; Frequency M M M.
- Broad Money: Date of Latest Observation December 2015; Date Received 2/13/2016; Frequency M M M.
- Central Bank Balance Sheet: Date of Latest Observation December 2015; Date Received 2/13/2015; Frequency M M M.
- Consolidated Balance Sheet of the Banking System: Date of Latest Observation December 2015; Date Received 2/13/2016; Frequency M M M.
- Interest Rates: Date of Latest Observation December 2015; Date Received 2/13/2016; Frequency D (data), M (reporting), M (publication).
- Consumer Price Index: Date of Latest Observation December 2015; Date Received 2/13/2016; Frequency M M M.
- Central Government revenue, expenditure, balance and composition of financing: Date of Latest Observation July. 2015; Date Received 08/03/15; Frequency M M M.
- Stocks of Central Government and Central Government-Guaranteed Debt: Date of Latest Observation 2015Q2; Date Received 08/02/2015; Frequency Q Q Q.
- External Current Account Balance: Date of Latest Observation 2015Q3; Date Received 1/11/2016; Frequency Q Q Q.
- Exports and Imports of Goods and Services: Date of Latest Observation 2015Q1; Date Received 08/02/15; Frequency Q Q Q.
- GDP/GNP: Date of Latest Observation 2014/15; Date Received 06/15/15; Frequency A A A.
- Gross External Debt: Date of Latest Observation 2015Q1; Date Received 02/17/2015; Frequency Q Q Q.
- International Investment Position: Date of Latest Observation 2015Q2; Date Received 07/27/15; Frequency A A A.

*IMF staff summary of ADB involvement in Afghanistan (as presented in the cited content unit).*

---


_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2016/_cr16120.pdf_