Press Release No. 08/133

Press Release: IMF Executive Board Reviews the Islamic Republic of Afghanistan's Poverty Reduction Strategy Paper and Joint IMF-World Bank Staff Advisory Note

June 4, 2008

The Executive Board of the International Monetary Fund (IMF) discussed on June 2 the Islamic Republic of Afghanistan's Poverty Reduction Strategy Paper — entitled Afghanistan National Development Strategy — and a Joint IMF-World Bank Staff Advisory Note (JSAN).

Following the Executive Board's discussion, Mr. Murilo Portugal, Deputy Managing Director and Acting Chair, made the following statement:

"Afghanistan's National Development Strategy (ANDS) lays out a comprehensive and ambitious program for improving security and governance, sustaining economic growth, and reducing poverty. The strategy, building on two years of preparations and extensive and broad-based consultations, stands on three pillars—security; governance, rule of law, and human rights; and economic and social development. It emphasizes fiscal sustainability and public financial management, improvements in the business climate, public administration reform, anti-corruption, counter-narcotics, and aid effectiveness as key priorities for achieving sustainable growth and macroeconomic stability. The challenge for the authorities is to start implementing the ANDS based on a proactive communication and outreach strategy in the country. The support of the international community at the Afghanistan Support Conference in Paris on June 12, 2008 will be crucial.

"The ANDS envisages an ambitious scaling-up of public expenditure in support of its development objectives. This will require significant improvements in public financial management and fiscal transparency to ensure that resources are utilized efficiently. It will be important also to integrate the ANDS with the government's medium-term fiscal framework, and to pursue vigorously domestic revenue efforts to ensure medium-term fiscal sustainability.

"Uncertainty surrounding the overall resource envelope and Afghanistan's limited absorptive capacity may constrain public spending. Sectoral spending programs therefore need to be carefully prioritized taking into account their impact on growth and poverty reduction.

"The ANDS emphasizes private sector development as the foundation for sustained economic growth and employment generation. In this regard, the ANDS appropriately highlights the need for an enabling macroeconomic and business environment, including an open trade regime, a sound legal framework, easy access to land, adequate and reliable infrastructure, and a developed and efficient financial system.

"Successful implementation of the ANDS will require effective monitoring and evaluation of the outcomes of spending programs. In turn, this will require improving the monitoring and evaluation framework through streamlining the large number of indicators outlined in the strategy, expanding the coverage and reliability of the statistical base, and strengthening the government institutions charged with monitoring implementation of the strategy.

"Continued financial and technical assistance from Afghanistan's development partners will be essential for the success of the ANDS. It will be important therefore to improve the effectiveness of aid-most notably through greater harmonization of donor policies, better alignment of donor and country priorities, and development of Afghanistan's institutional capacity for absorbing aid," Mr. Portugal said.