IMF Reaches Staff Level Agreement with Islamic Republic of Afghanistan on an Arrangement Under the Extended Credit Facility
IMF News, July 2, 2016
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- Published: July 2, 2016
Agreement overview
- IMF staff and the Afghanistan authorities reached staff-level agreement on an economic program to be supported by a three-year Extended Credit Facility (ECF) arrangement requested by the authorities.
- Proposed access under the arrangement: 10 percent of Afghanistan’s quota in the Fund (SDR 32.4 million, or about US$45 million).
- The arrangement is subject to approval by the IMF Executive Board, which is scheduled to consider the authorities’ request on July 20, 2016.
- IMF mission dates: discussions held in May and June 2016; mission led by Christoph Duenwald.
Economic conditions and outlook
- 2015 real GDP growth: 0.8 percent.
- Projected 2016 real GDP growth: 2 percent.
- Assessment: growth remains far below the level needed to ensure increased employment and improved living standards.
- Financing: large fiscal and external deficits continue to be financed by donor aid.
- Downside risks highlighted: uncertain security conditions and potential shortfalls in external support could lead to worse outcomes.
Relationship to prior program and expected role
- The new ECF arrangement builds on the nine-month Staff Monitored Program that was successfully completed in April 2016.
- Intended role of the ECF: play a catalytic role for continued strong donor support and be part of a broader multi-year development framework to set Afghanistan on a path to self-reliance.
Program pillars and core policy areas
- The program supported by the ECF arrangement rests on two pillars:
- Structural reforms to facilitate private sector development
- Concentration on areas where the Fund has a comparative advantage to complement policies supported by other international partners.
- Initial measures will support the authorities’ anti-corruption efforts and fiscal reform agenda.
- Fiscal reforms include measures to mobilize revenue and strengthen public financial management to enhance the efficiency of expenditure.
- Policies to preserve macroeconomic and financial stability
- Aim to gradually reduce underlying fiscal and external imbalances to prepare for a time when donor aid declines.
- Maintain buffers—low public debt and ample international reserves—to absorb adverse shocks.
- Budget will increasingly favor development spending to support a recovery in growth.
- Financial sector policies will aim to strengthen vulnerable and weak banks and reform the state-owned commercial banks.
- Monetary policy will continue to focus on maintaining price stability and a flexible exchange rate regime, while fostering confidence in the domestic currency in the context of high dollarization.
Procedural and definitional notes
- End-of-Mission press releases include statements of IMF staff teams that convey preliminary findings after a visit to a country; the views expressed are those of IMF staff and do not necessarily represent the views of the IMF’s Executive Board.
- Footnote: A Staff Monitored Program is an informal agreement between country authorities and Fund staff to monitor the implementation of the authorities’ economic program. It does not entail financial assistance or endorsement by the IMF Executive Board.
International Monetary Fund press release, July 2, 2016.